Define: Dependent Care Plan

A Dependent Care Plan is a benefit offered by employers that allows employees to set aside pre-tax dollars to cover eligible dependent care expenses, such as child care or elder care.

Generally, employees who have dependents, such as children under the age of 13 or disabled family members, are eligible to participate in a Dependent Care Plan. However, eligibility requirements may vary depending on the specific plan offered by the employer.

The maximum amount an employee can contribute to a Dependent Care Plan is determined by the Internal Revenue Service (IRS) and may change annually. For 2021, the maximum contribution limit is $5,000 for individuals or $2,500 for married individuals filing separately.

Dependent Care Plan contributions are not tax-deductible, but they are made on a pre-tax basis. This means that the contributions are deducted from your gross income before taxes are calculated, resulting in potential tax savings.

Eligible expenses for reimbursement under a Dependent Care Plan include child care expenses, such as daycare centers, babysitters, and after-school programs. Additionally, expenses related to the care of disabled family members may also be eligible.

Yes, summer camp expenses can be eligible for reimbursement under a Dependent Care Plan if the camp is primarily for the care of the dependent while the parent is working. However, overnight camps or camps focused on specialized activities, such as sports or arts, may not qualify.

Generally, Dependent Care Plan contributions can only be changed during the plan’s open enrollment period, which is typically held once a year. However, certain life events, such as the birth of a child or a change in employment status, may allow for mid-year changes.

Dependent Care Plan funds are typically “use-it-or-lose-it,” meaning any unused funds at the end of the plan year are forfeited. However, some plans may offer a grace period or allow for a limited amount of carryover funds into the following year.

In most cases, a Dependent Care Plan cannot be used if a stay-at-home spouse is available to provide care for the dependent. However, there may be exceptions if the stay-at-home spouse is physically or mentally incapable of providing care.

Generally, a Dependent Care Plan can only be used for expenses incurred by dependents who live with the employee for at least half of the year. However, there may be exceptions for certain situations, such as divorced or separated parents sharing custody. It is important to consult the specific plan guidelines for clarification.