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| Posted on: Monday, August 7, 2006 |
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In May of 2006 the IRS issued Proposed Dependent Care FSA regulations which incorporate the statutory changes that have been made since the original regulations were published 22-years ago and add some new rules to address administrative concerns. Fortunately, most of the guidance is not new; rather it has just been rewritten and reorganized to provide more detailed explanations and more examples of the types of expenses that may qualify for reimbursement.
What’s New and What’s Clarified?
Below are a few examples of the more material clarifications or newly added guidance plan administrators should be aware of and can begin relying upon now:
• The original regulations didn’t specifically address pre-school or day camp expenses as being eligible employment-related expenses, although guidance since then has been issued. Although education expenses such as those for kindergarten and higher do not qualify as employment related, the costs of children’s day camp as well as before-and after-school care may qualify for reimbursement. These expenses are employment-related only if they are for the care of a qualifying individual and the purpose in obtaining the services is to enable the individual to be gainfully employed. These proposed regulations now incorporate that guidance. Additionally, the cost of transportation furnished by a dependent care provider to or from a place where care is provided (e.g., a day camp or an after-school program not on school premises) may also be a qualifying expense.
• Consistent with prior informal guidance, the proposed regulations directly address what’s known as “indirect” expenses, which are expenses that relate to but are not directly for the care of a qualifying individual such as application fees, agency fees, deposits, etc. These expenses may be considered employment-related and therefore eligible if the expenses must be paid in order to obtain the care. However, such expenses will not be eligible if the care isn’t ultimately provided in the plan year.
• Substantially new to the regulations are temporary absences from work and part time work guidance. Dependent care expenses incurred during a time where the employee is absent from work typically aren’t eligible because they are not employment related. However, the regulations clarify that for short, temporary absences from work (such as vacation or minor illness) when an employee regularly pays for dependent care expenses on a periodic basis (weekly, monthly or longer term basis) can be considered eligible. Similarly, part-time employees who are required to pay for dependent care expenses on a periodic basis which includes both days worked and days not worked are not required to allocate expenses between work and non-work days.
These regulations provide employees and plan administrators with much-needed certainty on a variety of tricky issues regarding eligible dependent care expenses. A complete list of the IRS regulations can be found at http://edocket.access.gpo.gov/2006/pdf/E6-7390.pdf. The Denman Team will be contacting you directly if your Plan requires any changes or clarifications as a result of these regulations.
Should you have any additional employee benefit questions or would like to discuss this material in detail, please don’t hesitate to call the Denman Team. |
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