Nursing home expenses?

[Guest Crystal]

I apologize in advance if this has already been discussed but I could really use some input. A client wants to implement a 125 plan at his company. He intends to use the plan to cover his wife's aunt's nursing home expenses of $2500/month. Does this fall under dependent care (I don't know if he does/can claim her) or as medical reimbursement? Can someone fill me in on the dollar limit that might apply to this? Is this even allowed?

[SLuskin]

First of all, you have to determine if the wife's aunt is actually a dependent for income tax purposes. If not, you can't run anything through the plan. If she is, you can only run ligit medical expenses through. Not custodial care. So, if she gets prescription meds and MD visits there, those could be run through, but not the room/board/assistance with ADLs type expenses. And not dependent daycare, as it is not employment related.

[Lisa Hand]

An additonal issue as it relates to dependent care is how is the company structured. If it is an S corporation or partnership, the client(if he is the owner) could not participate in the plan even if they have qualifying expnese (greater than 2% shareholder rule). If it is a corporation, then non-HCE employees would also have to participate and account for more than 55% of the DCA benefit or the owner again could not participate. Section 125 plans are primary for the benefit of employees and owner/shareholder/HCE are limited in their participation.