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Dependent Care

​A dependent care account is similar to a medical account except it's for paying daycare expenses. The money you contribute to a dependent care account is not taxable, which means you'll pay less taxes than you would if this money is counted as taxable income.

This section explains the kind of expenses that are reimbursable with a dependent care account and other important rules of the program. Please read it carefully. Although a reimbursement account is a great way to lower your taxes and save money for certain expenses, you will forfeit any funds left in your account if you don't claim them by the deadline. You can avoid this possibility by following these simple steps:

  • Be sure expenses qualify.  Once funds have been deducted from your paycheck and credited to your account, you can only claim them if you incur an eligible dependent care expense. An expense is incurred on the date the service is provided, not when billed or paid.
  • Estimate expenses conservatively.  It's better to underestimate costs than overestimate. If you overestimate how much you expect to spend on eligible dependent care expenses, you'll end up with more money in your account than you can claim reimbursement for. Leftover funds cannot be carried over to the following year.
  • Meet the deadline for claims.  The deadline to submit claims for expenses incurred in the current plan year is June 30 of the following plan year.

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Dependent care expenses that are reimbursable

Expenses for child care, elder care, and care for a disabled dependent are reimbursable if the care is necessary for you to work or look for work. If you're married, your spouse must also work, unless he or she is a full-time student or physically or mentally incapable of caring for himself or herself.

Child care

For child care expenses to qualify, your child must be a dependent under the age of 13 when the child care is provided. (There is no age limit if your child is disabled.) You must be able to claim an exemption for this child on your federal tax return. However, if you are divorced or separated, your expenses may qualify if you are the custodial parent (have more than 50% custody) even if you can't claim the child's exemption (see IRS Publication 503 for details).

Elder care and disabled dependent care

PLEASE NOTE: The Working Families Tax Relief Act of 2004 (WFTRA) provides the definition of tax dependents (IRC 152). If you have used the dependent care reimbursement account to pay for elder care expenses, you may want to consult a tax advisor to determine if your dependent meets the qualifying dependent rules under WFTRA.

If the care is for a parent or other dependent who is disabled, that person must live in your home at least 8 hours a day, be unable to care for himself or herself, and be someone you can claim an exemption for on your federal tax return (even if you don't claim the exemption because the person's income exceeds the allowable limit).

A person who's unrelated to you but lives with you and is a member of your household may be considered your dependent if you provide over half of his or her support and the person qualifies as a dependent under Internal Revenue Code Section 152.

Dependent care services may be provided in your home or someplace else, including family day care homes and day care centers that comply with all applicable state and local laws. Day camp expenses qualify as eligible expenses, but overnight camp expenses do not qualify.

To be reimbursable, the care must be provided sometime from the effective date of your enrollment through the current plan year.  This is different than if you claim a tax credit on your current federal tax return, which bases eligibility on the year when you paid for the dependent care rather than when the care was provided. 

If you need help determining whether your expenses qualify for reimbursement, check IRS Publication 503 and/or consult a tax advisor.

Related expenses that are reimbursable

  • Services required for the maintenance of your household such as cleaning and cooking are eligible for reimbursement if the primary function of the provider of this service is to care for your dependent.
  • If your child care provider includes other services that are incidental to and can't be separated from the child care expense, the full amount is reimbursable. For example, if your child is enrolled in a nursery school, and the school provides lunch and education along with providing child care, the full amount you pay the school is reimbursable (within the annual limits of a dependent care account).

Non-reimbursable dependent care expenses

  • Dependent care services provided by one of your kids who is under the age of 19 at the end of the plan year are not eligible for reimbursement. For example, if you pay your 18-year-old to take care of your 9-year-old or a parent, the expense is not reimbursable.
  • Food and clothing costs are not reimbursable.
  • Transportation for your dependent between your home and the place where care is provided is not reimbursable.
  • Medical care is not covered by a dependent care account. Refer to the section on medical reimbursement accounts for coverage of such expenses.
  • School registration fees and expenses for overnight camp and/or camps primarily for educational purposes (e.g. science camp) are not reimbursable.
  • Education expenses for a child in the first grade or higher level are not reimbursable.
  • Given that tuition for a child in kindergarten or higher grade may not be reimbursable, it's important that receipts submitted from your dependent care provider distinguish daycare costs from tuition costs. Kindergarten tuition cost may not be reimbursable unless it is incidental to and can't be separated from the cost of care.

Annual limits on dependent care deductions

If you enroll in a dependent care reimbursement account, your contributions to it must be:
 
  • at least $20 per month, and
  • no more than $5,000 per year per household ($2,500 for a married individual filing a separate tax return).

In other words, over a 12-month period you may contribute a minimum of $20 per month up to a maximum of $416.66 per month (or $208.33 if you're married and filing a separate tax return). If you enroll mid-year, you may contribute more than $416.66 per month (up to the applicable annual household limit).

If you earn more than $120,000 in 2016 you're considered a "highly compensated employee" under IRS rules and may be subject to a lower maximum contribution than listed above. This program can't determine your maximum contribution until all enrollment documents have been processed (typically February or March). We will notify you if we determine that you must reduce your contribution amount. 

Under no circumstances may your annual contribution exceed the applicable maximum annual contribution, your annual earned income, or your spouse's annual earned income, whichever is less. 

If your spouse is a full-time student, or a dependent who is physically or mentally incapable of caring for himself or herself, for the purpose of determining your annual contribution your spouse will be considered to have
 
  • not less than $250 per month, if you only have one dependent for the plan year; or
  • not less than $500 per month, if you have two or more dependents for the plan year.

Estimating your dependent care deduction amount

To determine a monthly deduction amount that's appropriate for you, start by reviewing your dependent care expenses over the past year. Consider factors that may cause the cost to fluctuate such as your child returning to or entering school, reaching age 13, vacations, school breaks, care provider's vacation, etc.
 
To estimate a monthly contribution, divide your total estimated costs for the year by 12 (if you're enrolling during open enrollment). If you're enrolling mid-year as "newly eligible," divide the total by the number of months you will be enrolled (beginning with the effective date of your enrollment through December 31). 

Tax issues

Tax credit vs. reimbursement account: If you have dependent care expenses, you may already be familiar with the dependent care tax credit you can claim on your federal tax return. Depending on your income level, amount of dependent care expenses, and other factors, you may find that a reimbursement account provides a lesser tax advantage than claiming the tax credit on your federal tax return. Before enrolling in a reimbursement account, consult a tax advisor and/or review IRS Publication 503 if you're not certain which method works best for you. For more information review IRS Publication 503.
 
Filing IRS Form 2441: If you're enrolled in a dependent care account for the current plan year, you will need to complete Part 3 of IRS Form 2441 ("Child and Dependent Care Expenses") and attach this form to your current federal tax return. (If you use Form 1040A, attach Schedule 2 instead.)

Permitting Events

If you experience a change in status that's listed below, you're permitted to take the action that's listed below that change.  You have 60 days following the date of your status change to take the corresponding action. 

Your completed form(s) must be received at the State Controller's Office by the 10th of the month to be effective on the first of the following month.

Initial appointment to State service (includes reinstatement following a permanent break in service)

May enroll in reimbursement account(s) as newly eligible.

Marriage

May enroll in reimbursement account(s) as newly eligible or, if currently enrolled, may cancel/change reimbursement accounts.

Divorce (date of final divorce), legal separation, or annulment

May enroll in reimbursement account(s) as newly eligible or, if currently enrolled, may cancel/change reimbursement accounts.

Birth, adoption, or child placed for adoption

May enroll in reimbursement account(s) as newly eligible or, if currently enrolled in a reimbursement account, may increase payroll deduction.

Change of physical custody of child

May enroll in dependent care account as newly eligible or, if currently enrolled in a dependent care account, may cancel/change enrollment.

Death of spouse or domestic partner

May enroll in reimbursement account(s) as newly eligible or, if currently enrolled, may cancel/change elections.

Loss or commencement of spouse's or domestic partner's employment

May enroll in reimbursement account(s) as newly eligible or, if currently enrolled, may cancel/change reimbursement accounts.

Death of dependent (other than spouse)

If currently enrolled in reimbursement account(s), may cancel/decrease payroll deduction. New enrollments not allowed.

Child attains age 13

If currently enrolled in dependent care account, may cancel/decrease payroll deduction. New enrollments not allowed.

Change in employee's or spouse's work schedule (e.g., FMLA, NDI, SDI, IDL, time base change, reduction of hours, separation, commencement or return from an unpaid leave of absence) or work site that results in a loss of eligibility.

If currently enrolled in dependent care account, may cancel/change enrollment. New enrollments not allowed.

Change in dependent care provider

May enroll in dependent care account as newly eligible or, if currently enrolled, may cancel/change enrollment.

Change in provider dependent care cost

May enroll in dependent care account as newly eligible or, if currently enrolled, may cancel/change enrollment. Action allowed only if the provider is not a relative.

Payroll Status Changes

In addition to the permitting events listed above, here are some other payroll status changes and how they affect your enrollment: 

Non-Industrial Disability Insurance (NDI):  If you go on NDI while enrolled in a dependent care reimbursement account, your monthly deductions remain in effect and will be reflected on your NDI check. 

Industrial Disability Leave (IDL) and Temporary Disability (TD):  If you go on IDL or TD while enrolled in a dependent care reimbursement account, your account deductions will stop for as long as you're on IDL or TD. If you return to regular pay within the plan year, your deductions will resume. However, if you go on IDL or TD with Supplementation (IDL or TD/S), your reimbursement account deduction will continue, provided the amount of your supplementation income is large enough to cover the full amount of your account deductions. 

State Disability Insurance (SDI) for employees in Bargaining Units 1, 3, 4, 11, 14, 15, 17, 20 & 21: If you go on SDI while enrolled in a dependent care reimbursement account, your enrollment will stop while you are on leave. If you return to pay status in the same plan year, your enrollment will resume. 

Unpaid Leave of Absence:  If you are on an unpaid leave of absence while enrolled in a dependent care reimbursement account, your enrollment will stop while you are on leave. If you return to pay status in the same plan year, your enrollment will resume. 

Military Leave:  If you are called to active military duty for the War on Terrorism, you are eligible to retain your State benefits for up to 730 calendar days provided by GC Section 19775.18. 

 

  Updated: 10/4/2016
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