TRILLIUM INSURANCE SERVICES
  • Home
  • Health Quotes
  • Dental & Vision
  • Resources
    • Nutrition / Longevity
    • Type 2 Diabetes
  • Blog
  • Contact

Trillium Insurance Services - Blogspot

IRS ISSUES GUIDANCE ON TAXABILITY OF DCAP BENEFITS FOR 2021 AND 2022

6/8/2021

0 Comments

 
On May 10, 2021, the Internal Revenue Service (IRS) released guidance on the taxability of dependent care assistance programs (DCAPs) for 2021 and 2022, clarifying that amounts attributable to previously issued carryover and extended grace period relief generally are not taxable.

Specifically, if these dependent care benefits would have been excluded from income if used during taxable year 2020 (or 2021, if applicable), these benefits will remain excludible from gross income and are not considered wages of the employee for 2021 and 2022. They will also generally not be taken into account for purposes of applying the exclusion limits of Internal Revenue Code Section 129.

Example
IRS Notice 2021-26 clarifies the interaction of this standard with the one-year increase in the exclusion for employer-provided dependent care benefits from $5,000 to $10,500 for the 2021 taxable year under the American Rescue Plan Act:

FACTS: Employee elects to contribute $5,000 for DCAP benefits for the 2020 plan year but incurs no dependent care expenses during that plan year. The employer amends its plan to allow the employee to carry over the unused $5,000 of DCAP benefits to the 2021 plan year. The employee elects to contribute $10,500 for DCAP benefits for the 2021 plan year, incurs $15,500 in dependent care expenses for that plan year, and is reimbursed $15,500 by the DCAP.

CONCLUSION: The $15,500 is excluded from the employee’s gross income and wages because $10,500 is excluded as 2021 benefits and the remaining $5,000 is attributable to a carryover permitted by the previously issued coronavirus-related relief.
0 Comments



Leave a Reply.

    Archives

    June 2023
    May 2023
    March 2023
    February 2023
    December 2022
    October 2022
    August 2022
    July 2022
    June 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021

    Categories

    All

    RSS Feed

Trillium Insurance Services, Inc.                                                                                                     .

Address

1932 E. Deere Ave., Ste. 220
​Santa Ana, CA 92705

Email

[email protected]
Privacy Policy
Disclaimer
                                                                                                                              Copyright © 2025, Trillium Insurance Services, Inc. All rights reserved
  • Home
  • Health Quotes
  • Dental & Vision
  • Resources
    • Nutrition / Longevity
    • Type 2 Diabetes
  • Blog
  • Contact