Chapter 54
DEPENDENT CARE ASSISTANCE PLAN
LEARNING OBJECTIVES:

Identify key facts related to dependent care assistance plans
REVIEW:
This chapter discusses reimbursement of employees for day care and other
dependent care expenses. An alternative to reimbursement is the provision of an
actual day care center. Advantages and disadvantages are mentioned, followed
by a brief section on design features. The tax implications section focuses on
deductibility of plan costs and benefits. ERISA (Employee Retirement Income
Security Act) requirements and alternatives are reviewed, along with brief
information on how to install a plan. After references for learning more, the
chapter closes with a question and answer section, which includes a discussion
on choosing between dependent care assistance options.
CHAPTER OUTLINE:
I. What Is It?
II. When Is It Indicated?
III. Advantages
IV. Disadvantages
V. Design Features
VI. Tax Implications
VII. ERISA and Other Requirements
VIII. Alternatives
IX. How to Install a Plan
X. Where Can I Find Out More About It?
XI. Questions and Answers
XII. Chapter Endnotes
1
Chapter 54
FEATURED TOPICS:
Dependent care assistance plans
CFP® CERTIFICATION EXAMINATION TOPIC: NONE
COMPETENCY:
Upon completion of this chapter, the student should be able to:
1. Identify key facts related to dependent care assistance plans
KEY WORDS:
Dependent care assistance
Internal Revenue Code Section 162
Internal Revenue Code Section 129
Subsidized day care
Dependent care tax credit
DISCUSSION:
1. Discuss tax implications related to dependent care assistance plans.
2. Discuss how an employee might decide between using the employer’s
dependent care assistance plan and using the dependent care tax credit (IRC
Section 21).
QUESTIONS:
1. Which of the following are reasons why an employer gets more benefits for
each dollar spent on a properly constructed dependent care assistance plan
than for cash compensation?
(1) grade school expenses can be reimbursed by the plan
(2) the employer gets a deduction
(3) benefits are tax–free to the employee
(4) overnight summer camp expenses can be considered qualifying expenses
Chapter 54
a.
b.
c.
d.
(1) only
(1) and (2) only
(2) and (3) only
(2), (3), and (4) only
Chapter 54, pp. 401, 402
2. What is the maximum age of a child (who is physically and mentally able to
take care of him or herself) for whom dependent care assistance is eligible
under IRC Section 129?
a.
b.
c.
d.
6
13
16
18
Chapter 54, p. 402
3. Which of the following expenses qualify as care under a properly structured
dependent care assistance plan?
a.
b.
c.
d.
full preschool and kindergarten expenses
after-school programs for 15 year-olds
summer camp for 16 year-olds
an overnight summer camp program
Chapter 54, p. 402
ANSWERS:
1. c
2. b
3. a