change in status?

[wsp]

Plan year end is 6/30. Child enters kindergarten in September and daycare is no longer needed...would that be a change in status that would allow the deduction to be stopped or would that be argued as a forseen event and the participant should never have started and thus forfeits the contributions?

[J Simmons]

I don't think entering kindergarten is a change in family status that in turn changes the number of dependents for which a mid-year change in election is permitted. The child is yet the EE's dependent, and yet under age 13.

I once came across a cafeteria plan that allowed, as part of the sign-up sheet, the EE to select differing amounts of payroll deduction per each calendar month during the year (July, August, September, etc.) for day care flex account purposes. It was for the very type of situation you describe. They were seeking help to unwind it mid-year because of the payroll nightmare it created--we determined that they had to live with it through the end of that plan year.

[papogi]

Regs issued in March 2000 by the IRS would allow someone to drop a DC account if a child goes from a day care facility to kindergarten. The change would be allowed under either the change in cost or the change in providers.

[Jacmo]

I agree with papogi. If the regs will allow a participant to decrease or cancel election "because grandma has agreed to watch the child for free", then the kindergarten watching the child for "free" ought to be just as good.

Regs. 1.125-4(f)6, Example 5

[LRDG]

if the child is leaving private child care/pre-K and is entering kindergarten in the public school system at no cost, than yes this is a change in provider allowing election change, unless the plan prohibits election changes. Caution about overlooking before/after school care fees.

[wsp]

if the child is leaving private child care/pre-K and is entering kindergarten in the public school system at no cost, than yes this is a change in provider allowing election change, unless the plan prohibits election changes. Caution about overlooking before/after school care fees.

In my case the public school has a cost...however it's educational expense so not an eligible expense. correct?

1/2 day kindegarten is free..all day has expense of about $200 month.

[LRDG]

No. Kindergarten expenses are eligible DC expenses if they are "employment related DC expenses", meaning the DC is provided in order for you, and spouse if you are married, to work. It can be a private Pre-K through 12th grade school.

According to IRC 129, the educational benefit must be an incendential benefit to the day care benefit, even if it is private school and all day w/extended day care hours/expenses for pre-school age children of working parent(s).

Parents make the determination that the child is receiving benefit of an education that is incidential to the day care/child care benefit provided.

Tutition for 1st grade and beyond is not eligible dependent care expense, with the exeption of before/after school care, which is eligible through age 12. The simplified explanation is that legally, children are required to attend school, which is provided via public schools, paid by tax payers.

These general rules apply to dependent care expenses excluded from income via Sec. 125/129 plans, a stand alone Sec. 129 plan, or if the the parent/s claim child care expense deduction.

Under the 129 plan, the max amount is $5,000 per year, regardless of the number of children, with possible lower dollar limits for parents who are unemployed but seeking employment, disabled or full time student.

The tax credit is slightly different, is based on the number of qualified children in child care. The child care expense tax credit limits expenses to $2,400 for 1 child or $4,800 for 2 or more children no more than 12 year of age.

Summer day camp expenses are also eligible DC expenses under Sec. 129 for employment related day care for children no more than 12 yoa.

[LRDG]

Forgot to mention that dependent care as described in Sec. 129 includes care provided for adult dependent care. This could in limited circumstances include care for disabled adults such as a spouse, mother/father, grandparents, inlaws, sister/brother, aunt/uncle and disabled children older than 12 yoa.

If for instance the care is provided in home, and expenses exceed the maximum annual $5,000 allowed under Sec. 129, the balance of the expenses may be paid from the medical FSA of the Sec. 125.

Establishing how much of the care is costodial/non-medical, from care that is medical due to disease, disoroder, or level of disability may be indistinguishable. Sec. 129 includes care provided for disabled dependents more than 12yoa, vs. the medically necessary care described in Sec. 213 for the medical FSA.

Care that is provided in home, through a child or adult day care center, or long term care facility, can easliy exceed the maximums allowed under a Sec. 129 plan. Taking advantage of both a medical and dependent care FSA to reimburse these costs can be significient financial benefit because of exclusion from taxable income and tax savings through pre-tax payroll deduction and subsequant reimbursement, in addition to the lower income tax bracket based on lower W-2 form income.

[Guest Jeremy_Davis]

Plan year end is 6/30. Child enters kindergarten in September and daycare is no longer needed...would that be a change in status that would allow the deduction to be stopped or would that be argued as a forseen event and the participant should never have started and thus forfeits the contributions?

From my understanding the IRS has come out and clarified the definitions of employment related expenses.

This is a quote from the text I have;

"Preschool and Kindergarten. The proposed regulations clarify that expenses for nursery school, pre-school, or similar programs below the kindergarten level are presumed to be for the care of the qualifying individual. Expenses associated with kindergarten or higher levels are not for care (although pre- and post- school day care may be "care")"

As far as the question for the main poster, I agree with the other posters above. The change of status could be allowed on either the change of provider or the change in costs.

Jeremy Davis

Diversified Administration, Inc.

www.div125.com

[Guest Jensen]

From my understanding the IRS has come out and clarified the definiteions of employment related expenses.

This is a quote from the text I have;

"Preschool and Kindergarten. The proposed regulations clarify that expenses for nursery school, pre-school, or similar programs below the kindergarten level are presumed to be for the care of the qualifying individual. Expenses associated with kindergarten or higher levels are not for care (although pre- and post- school day care may be "care")

Do you have a cite for that?

TIA!

[Guest Jeremy_Davis]

From my understanding the IRS has come out and clarified the definitions of employment related expenses.

This is a quote from the text I have;

"Preschool and Kindergarten. The proposed regulations clarify that expenses for nursery school, pre-school, or similar programs below the kindergarten level are presumed to be for the care of the qualifying individual. Expenses associated with kindergarten or higher levels are not for care (although pre- and post- school day care may be "care")

Do you have a cite for that?

TIA!

I got that from John Hickman, Esq.'s "2007 Compliance Update." we got from DataPath. He's from Alston & Bird LLP in Atlanta, GA. I'm sure I can find an EBIA cite too if you'd like...

also, what's TIA?

Diversified Administration, Inc.

www.div125.com

You Section 125 Headquarters

[papogi]

One place where the IRS has said that kindergarten is generally educational in nature is in IRS Info Letter 2000-0246, issued in September of 2000.

[Guest Jensen]

TIA -- Thanks in advance.

[LRDG]

http://www.conexis.org/pdfs/IRS%20Informat...%20Expenses.pdf

The above link is the letter, IRS Info Letter 2000-0246.

Also see :

http://www.irs.gov/irb/2006-24_IRB/ar09.html

"This document contains proposed regulations regarding the credit for expenses for household and dependent care services necessary for gainful employment."

"Credit" refers to the tax credit when filing income tax returns versus Sec. 129 for a dependent care spending account plans.

"Household" refers to housekeeping services provided in the taxpayer's home, in addition to providing child care services, versus Sec. 129 for dependent care spending account plans.