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Dependent Care eligible expenses


Guest bhoskinson
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Guest bhoskinson

Has anyone ever needed to adjust an employee's W2 based upon the eligible expenses under the Section 125 plan for dependent care? What are the IRS issues for this? THANKS!

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  • 1 month later...

Why would you need to adjust W-2 income for this? If the employee set aside a specific amount for dependent care under a properly constructed cafeteria plan, that amount is excluded from W-2 income. If the employee then fails to have enough expenses to use up that money, he or she will lose the money, so this situation would not require an amendment of the W-2. Was there some kind of error in reporting this initially?

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Guest bhoskinson

We were instructed to issue a W2-C for those employees which returned a statement (showing proof of payment) and W10 from their daycare provider when the amount differs from the deduction. Are we not responsible for adjusting these?:) :confused:

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In all the cases I've seen, the employer either pays the daycare provider directly, or reimburses the employee only for documented expenses. Thus, there is no adjustment necessary, because reimbursed expenses are always equal to documented expenses. The deduction from the employee's paycheck should not be adjusted, even if actual expenses are less than anticipated.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Guest bhoskinson

I have been researching this a bit further and found that our dependent care account is not set-up as a reimbursable account.

Our third party "125 administrator" sends the deducted pre-tax amounts directly to the employee (without the employee submitting a receipt or statement from the daycare provider) and it is the employees responsibility to submit this payment to the daycare provider.

With type of setup, wouldn't the pre-tax monies given to the employee which are not supported with a statement or daycare receipt from their provider be considered taxable income and need added to their W2 wages? Isn't the employer responsible for adjusting the gross wages? Have you heard of a dependent care 125 account estabilished in this manner?

Any assistance would be appreciated!

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If the third-party administrator is paying claims without adequate documentation, you run the risk of the entire arrangement being treated as a nonaccountable expense reimbursement arrangement. In that case, all of the amounts paid to employees, not just those that exceeded their actual expenses, would be includible on their Forms W-2.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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