News
Dependent Care Expenses
On May 24, 2006, the Internal Revenue Service issued new proposed regulations under Internal Revenue Code § 21 regarding dependent care expenses. While issued in relation to the dependent care tax credit, these regulations create similar requirements for reimbursement of dependent care expenses under a dependent care Flexible Spending Account (FSA).
These proposed regulations confirm previously released formal and informal guidance regarding dependent care expenses and for the most part do not change the way Hirsch Financial Services adjudicates dependent care claims.
These proposed regulations confirm that the following expenses for a qualified dependent are not reimbursable:
- Tuition costs for kindergarten (and higher grades)
- Expenses for overnight camps
- Payments paid to a participant's dependent or spouse, or to the mother of the participant's qualified child
- Expenses for day care provided while you or your spouse are absent from work for an extended period of time (e.g., leave other than for vacation or for minor illnesses)
These proposed regulations confirm that the following expenses for a qualified dependent are reimbursable:
- Expenses for day camps even those that specialize in an activity, e.g., computer camps, soccer camps, etc.
- Fees paid to obtain care such as application fees, agency fees and deposits (including those to reserve a space) are reimbursable but only when and if care is actually provided
The one notable change in these regulations relates to transportation provided by a dependent care provider to and from the place where the dependent care is provided. In the past such expenses were only reimbursable if incidental to and inseparably a part of the dependent care expense i.e., did not appear as a separate charge on the dependent care receipt or statement. Such charges, even if listed separately, are now reimbursable.
Please keep in mind that these regulations are proposed and while the IRS states that they can be relied on immediately, HFS will await further guidance before incorporating any new language in plan documents or amendments.
If you have any questions, please call our office.