Dependent Care Assistance Plan Regulations

Friday, June 30, 2006
Contributed by: Dan L. Schaap

On May 24, 2006, the IRS issued proposed regulations regarding dependent care expenses. The regulations replace regulations issued 22 years ago.

Employers who sponsor Dependent Care Assistance Plans, "DCAPs," should review the proposed regulations because they not only contain new material, but also clarify prior legislation, guidance, and informal comments made by the IRS. Among the areas covered are expenses for kindergarten, day-care, and transportation to or from care; "indirect" expenses such as application fees, deposits, and the like; expenses incurred while employees are on a temporary abscence or doing part-time work; and payments to related individuals. The regulations are not final, but taxpayers, and presumably DCAPs that define dependent care expenses as employment-related expenses under Code Section 21, can rely on them now.

This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author's law firm or its individual partners.