Is there a pre-tax way to pay my child care expenses?
Yes, you may qualify for a pretax dependent care reimbursement account. Qualified employment-related dependent care expenses are those expenses incurred by you in order that you can be gainfully employed and may be deducted from payroll on a pretax basis. Salary will be reduced by a predetermined amount specified by the resident/fellow (with a maximum of $5,000 per year). The amount of the deduction is credited to a non-interest - bearing account and will be used to reimburse you for qualified dependent care expenses.
How do I get reimbursed?
Monthly, you should send your paid invoices from a qualified daycare provider as defined by Section 129 of the IRC to Michael Tran at the Consortium. You will be reimbursed through payroll for amounts withheld previously and you will continue to be reimbursed until all funds withheld have been disbursed. You cannot receive reimbursement if paid receipts are not provided. Unused account balances at the end of the plan year will be forfeited in accordance with IRS regulations so it is important to withhold only those amounts for expenses that you will incur during the plan year. The plan year is January 1 through December 31.
Who qualifies as a dependent for purposes of the Dependent Care Reimbursement Account?
The term dependent includes any individual for whom you are entitled to a personal federal income tax exemption. Benefits may include, if eligible, coverage of expenses for care of children under the age of 13, your dependent, incapacitated parents or spouses and incapacitated children, regardless of age.
Does this account result in a greater tax savings than taking the dependent care credit on your 1040 tax return?
Yes; this account is also exempt from Social Security tax. For specific details to compare the net tax effect, you should consult your tax accountant. The expense incurred is covered by Section 129 of the Internal Revenue code and such expenses must satisfy the criteria established in this Section to be entitled to reimbursement. No refunds can be made after establishing your account so you need to make sure your expenses qualify.
What if I file a separate federal income tax return from my spouse?
Your maximum contribution to your reimbursement account will be limited to $2,500. (1/2 of the $5,000 limit)
*By fax 860-676-1303, email email@example.com, or by mail to CAHC, 270 Farmington Avenue, Suite 352, Farmington, CT 06032.