Can Our DCAP Reimburse Expenses for the Care of a Child Who Will Turn 13 Later in the Plan Year?

A participant in our company’s Dependent Care Assistance Program (DCAP) faces a common scenario: hiring an adult son to provide after-school care for their 10-year-old daughter. The burning question: Can the DCAP reimburse payments to the son? Let’s dive into the details.

  1. Eligibility for Reimbursement:
    • Payments to certain relatives or dependents do not qualify for reimbursement under the DCAP requirements.
    • Specifically, a DCAP cannot reimburse payments to an employee’s child who is under age 19 at the end of the year or to someone whom the employee (or the employee’s spouse) could claim as a dependent.
    • Whether the DCAP can reimburse the participant for care provided by the son hinges on the son’s age and whether the participant (or the participant’s spouse) can claim him as a dependent for federal income tax purposes.
  2. Limitations on Reimbursement:
    • DCAPs cannot reimburse payments to an employee’s spouse or to the parent of an under-age-13 qualifying child (e.g., an employee’s former spouse who is also the child’s parent).
    • It’s essential to communicate this information clearly in your DCAP summary or open enrollment materials.
  3. Documentation Requirements:
    • Participants must include specific details when claiming an exclusion for reimbursement of dependent care expenses on their tax returns (using Form 2441).
    • For individual care providers, participants need to provide the name, address, and taxpayer identification number (TIN) (usually the Social Security number).
    • Exempt organizations require only the provider’s name and address.

In summary, while the DCAP can potentially reimburse payments for care provided by the son, it’s crucial to understand the eligibility criteria, limitations, and documentation requirements. Clear communication and accurate reporting are key to ensuring compliance with DCAP rules.

Source: Thomson Reuters