What is it?

1. What is it? A dependent care assistance plan • Reimburses employees for day care and other dependent care expenses OR • Provides an actual day care center or similar arrangement

2. When is it indicated? • Employer wants to attract and retain employees who must find care for dependents during work hours • To provide attractive tax benefit to all employees with dependent care expenses

3. Advantages • Helpful in recruiting and retaining low-paid employees who have dependent care needs • Provides tax advantages to employer; dependent care assistance is tax-free to employees • Plan can be funded in part or total through FSA salary reductions

4. Disadvantages • Fully-subsidized dependent care is costly; partially subsidized program may not attract and keep employees • Nonparticipating employees may see dependent care as discriminatory

5. Design Features • In-kind • Day care and after school care on business premises • Contract with nearby center • Provide benefit through full or partial reimbursement of qualifying employee expenses for dependent care

6. Tax Implications • Plan costs tax deductible to employer • Benefits tax-free to participating employees • If plan is discriminatory, plan benefits become taxable to highly compensated employees • Dependent care assistance only available for • Dependent child under age 13 • Spouse or dependent physically or mentally unable to care for self

7. Tax Implications • Limit on dollar amount of benefits • Qualifying expenses for care alone, not education, above kindergarten level • Dependent care assistance plan must be in writing • Taxpayer must report name, address, and tax identification number of care provider

8. ERISA and Other Requirements Welfare benefit plan under ERISA • Written plan document • Summary plan description • Designated plan administrator • Formal claims procedure Employer must give statement of prior year expenses to employees using plan

9. Alternatives Extra compensation Bonuses Develop: • Written plan • Summary plan description How to Install a Plan