Understanding DCAP Reimbursements: Application Fees, Deposits, and Indirect Expenses

Understanding DCAP Reimbursements: Application Fees, Deposits, and Indirect Expenses

Navigating the intricacies of Dependent Care Assistance Programs (DCAP) can be challenging, especially when it comes to understanding what expenses qualify for reimbursement. One common question that arises is whether application fees, deposits, and similar expenses can be reimbursed. Here, we break down the IRS regulations and provide clarity on this topic.

What Are Indirect Expenses?

Indirect expenses are costs that are not directly for care but are necessary to obtain care. Examples include application fees and deposits paid to day-care centers or preschools. According to IRS regulations, these expenses may qualify for reimbursement under a DCAP if they meet specific criteria.

Criteria for Reimbursement

To be eligible for reimbursement, indirect expenses must:

  1. Be Required for Care: The employee must be required to pay these expenses to obtain related care.
  2. Meet DCAP Rules: The expenses must comply with DCAP rules and the plan document.
  3. Relate to Provided Care: The care to which these expenses relate must actually be provided.

Examples of Reimbursable and Non-Reimbursable Expenses

  • Reimbursable: If a DCAP participant pays a $100 application fee to secure a spot at a new day-care provider, this fee can be reimbursed once the care is provided.
  • Non-Reimbursable: If a participant pays a $100 deposit to a preschool but later decides not to enroll the child, the deposit is not reimbursable since the care was not provided.

Timing of Reimbursement

The IRS does not specify whether indirect expenses can be reimbursed in full once care commences or if they must be reimbursed proportionately over the duration of the care agreement. To err on the side of caution, it is advisable to prorate the reimbursement over the agreement’s duration. For instance, if the agreement is month-to-month, the entire fee might be reimbursed after the first month of care. For longer agreements, the fee should be prorated accordingly.

Conclusion

Understanding the nuances of DCAP reimbursements for indirect expenses like application fees and deposits is crucial for both employers and employees. By ensuring these expenses meet the necessary criteria and timing the reimbursements appropriately, you can navigate the DCAP rules effectively and make the most of your benefits.

Source: Thomson Reuters

Understanding DCAP Reimbursements: Application Fees, Deposits, and Indirect Expenses

IRS Announces 2025 Standard Mileage Rates and Vehicle Value Limitations

The IRS has released the optional standard mileage rates for 2025, providing important updates for businesses, medical care, and charitable activities. Here’s what you need to know about the new rates and vehicle value limits.

2025 Standard Mileage Rates
  • Business Use: The standard mileage rate for business use of an automobile has increased to 70 cents per mile, up from 67 cents in 2024. This rate can be used instead of calculating actual expenses like depreciation, lease payments, and fuel costs.
  • Medical and Moving Use: The rate for using an automobile to obtain medical care or for moving expenses remains unchanged at 21 cents per mile. This rate applies to variable expenses only, such as gas and oil, and does not include fixed costs like depreciation and insurance.
  • Charitable Use: The rate for charitable use of an automobile remains at 14 cents per mile.
Understanding the Rates

The standard mileage rates offer a simplified method for taxpayers to deduct automobile expenses. For business use, the rate covers both fixed and variable costs, while for medical and moving purposes, only variable costs are deductible. Parking fees and tolls related to medical or moving expenses can be deducted separately.

Vehicle Value Limits

The IRS has also set the maximum vehicle values for 2025, which determine the applicability of certain valuation rules for employer-provided vehicles:

  • Cents-Per-Mile Rule: This rule values personal use of an employer-provided vehicle by multiplying the business standard mileage rate by the number of personal miles driven.
  • Fleet-Average Valuation Rule: Employers with a fleet of 20 or more vehicles can use an average annual lease value for each vehicle in the fleet.

For vehicles first made available for personal use in 2025, the maximum vehicle value under both rules is $61,200, down from $62,000 in 2024. This value also sets the maximum standard automobile cost for reimbursement allowances under a fixed and variable rate (FAVR) plan.

These updates from the IRS provide clarity and consistency for taxpayers planning their 2025 automobile expenses. By understanding and utilizing the new standard mileage rates and vehicle value limits, individuals and businesses can better manage their tax deductions and compliance.

Understanding DCAP Reimbursements: Application Fees, Deposits, and Indirect Expenses

IRS Sets 2025 PCORI Fee Amounts

The IRS has released the 2025 Patient-Centered Outcomes Research (PCORI) fee amounts for health insurers and self-insured health plan sponsors. The PCORI fee is due on July 31, 2025. For plan and policy years ending between October 1, 2024, and October 1, 2025, the PCORI fee is $3.47 per covered life, up from $3.22 for the previous year. This is a $.25 increase from the amount in effect for plan and policy years ending on or after October 1, 2023, and before October 1, 2024.

PCORI fees are calculated by multiplying the applicable dollar amount for the year by the plans or policy’s average number of covered lives. These fees, established by the Affordable Care Act (ACA), fund clinical effectiveness research.

Below is the fee amount per plan year.

For more information on the upcoming PCORI fee deadline please refer to the IRS’ PCORI fee FAQ

Understanding DCAP Reimbursements: Application Fees, Deposits, and Indirect Expenses

2025 FSA Limit Increases: What To Know

The IRS announced the 2025 contribution limits for all Flexible Spending Account (FSA) plans. Below is an overview of the limit increases across all the types of FSAs except for Dependent Care FSAs, which remain the same at $5,000 per year.

Health Flexible Spending Account

The Health FSA, which provides employees the ability to set aside money on a pre-tax basis to pay for eligible medical, dental, and vision expenses will have an increase to its contribution maximum from $3,200 to $3,300 for 2025. The new contribution limit will also apply to the Limited Purpose FSA which reimburses eligible dental and vision expenses. Limited Purpose FSA limits will also increase from $3,200 to $3,300 for 2025.

Carryover Limit

The FSA Carryover limit provides employers the option to transfer a maximum amount of remaining FSA balances at a plan year’s end to carryover for use during the next plan year. This is available with Healthcare and Limited Purpose FSAs only. The carryover limits for this account will increase from $640 to $660 for 2025.

Commuter Benefits

Commuter Benefits help employees pay for certain parking, mass transit, and/or vanpooling expenses with pre-tax dollars. The contribution limits for this account will increase from $315 to $325 for 2025.

Adoption Assistance

The Adoption Assistance FSA helps employees pay eligible adoption expenses such as agency fees and court costs by contributing to the account with pre-tax money from their paycheck. The contribution limits for this account will increase from $16,810 to $17,280 for 2025.

For more information about this major change, read our latest handout.

Understanding DCAP Reimbursements: Application Fees, Deposits, and Indirect Expenses

NueSynergy Named Among Top HSA Providers by Morningstar in 2024

NueSynergy was honored to be recognized by Morningstar as a Top HSA Administrator in 2024. This recognition highlights NueSynergy’s commitment to offering exceptional HSA services that help individuals and families manage their healthcare expenses effectively. 

Why NueSynergy Stands Out 

NueSynergy has earned its place among the top HSA providers by offering a range of features that cater to the needs of its users: 

  • Investment Options: NueSynergy was recognized for its extensive variety of value-based investment options, with the majority consisting of gold rated Morningstar funds. 
  • Competitive Interest Rates: Account holders benefit from competitive interest rates on their deposits, ensuring their money grows even as they use it for medical expenses. 
  • User-Friendly Platform: The intuitive platform makes it easy to manage accounts, track expenses, and make informed investment decisions. 

National HSA Day 

Earlier this week, we celebrated National HSA Day, which recognizes the importance of Health Savings Accounts (HSAs), raising awareness about their benefits. HSAs can be used not only for immediate medical expenses but also as a strategic tool for retirement planning. By understanding and utilizing HSAs, individuals can take control of their healthcare finances and secure a healthier financial future. 

As we celebrate National HSA Day, it’s the perfect time to explore the benefits of HSAs and consider why NueSynergy is a top choice for managing your healthcare savings. With its competitive interest rates and robust investment options, NueSynergy stands out as a leader in the industry. Take advantage of this day to learn more about HSAs and how they can benefit you and your family. 

What is an HSA? 

A Health Savings Account (HSA) is a tax-advantaged savings account designed to help individuals with high-deductible health plans (HDHPs) save for medical expenses. HSAs offer a triple tax benefit: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are also tax-free. This makes HSAs a powerful tool for both current healthcare spending and long-term savings. 

About NueSynergy 

NueSynergy is known for industry-leading service, innovative technology, and excellence in providing full-service administration of consumer-driven and traditional account-based plans to employers of all sizes and sectors. NueSynergy offers a fully integrated suite of administration services, which include Health Savings Account (HSA), Health Reimbursement Arrangement (HRA), Flexible Spending Account (FSA), Lifestyle Savings Account (LSA), and COBRAcare+ administration as well as SpouseSaver Incentive Account, Combined Billing, Direct Billing, and Specialty Solutions. For more information, visit https://nuesynergy.com/ 

About Morningstar 

Morningstar is a leading provider of independent investment research and insights. The company offers a wide range of products and services for individual investors, financial advisors, asset managers, and institutional investors. Morningstar provides data and research on various investment offerings, including mutual funds, ETFs, stocks, and bonds. Additionally, they offer investment management services through their subsidiaries, managing approximately $286 billion in assets as of December 31, 2023. Morningstar operates in 32 countries, empowering investor success globally.