TOOLS & TECHNIQUES OF EMPLOYEE BENEFIT AND RETIREMENT PLANNING
11th Edition
College Course Materials
Deanna L. Sharpe, Ph.D., CFP®, CRPC®, CRPS®
Associate Professor
CFP® Program Director
Personal Financial Planning Department
University of Missouri-Columbia
Please Note: Correct answers for each question are indicated in bold type. After each question,
the number of the page containing information relevant to answering the question is given. When a
calculation is necessary or the reasoning behind a given answer may be unclear, a brief rationale
for the correct answer is also given.
Part B: Employee Benefit Planning
Fringe Benefits
Chapter 54: Dependent Care Assistance Plan
True/False
54.1
A children’s day care center must be located at the employer’s place of business to be tax
deductible to the employer.
54.2
To gain a tax advantage, an employer must make dependent care assistance available to
all employees in a nondiscriminatory manner. This means that no employee can be
excluded.
54.3
An employee who receives tax-free benefits under a dependent care plan can also use the
dependent care tax credit on their personal tax return as long as legal maximums related to
total dollar amount of dependent care are not exceeded.
Answers:
54.1 False [p. 401]
54.2 False [p. 401]
54.3 False [p. 403]
Multiple Choice
54.4
Which of the following is a qualified dependent care expense for working parents?
a.
b.
c.
d.
e.
tuition and fees for first grade at a private school
after school care for a 14 year old
expenses for a one-week overnight summer camp
cost of a housekeeper to care for two preschool aged children
payment to 18 year old daughter to care for three siblings under age 10 after school
Answer: D [p. 402]
54.5
To receive tax advantages, a dependent care assistance plan must:
a.
b.
c.
d.
e.
be written
be explained to employees in a summary plan description (SPD)
have received government approval before initial use
a and b
a and c
Answer: D [p. 402]
54.6
An employer can provide employees with tax-advantaged dependent care in all of the
following ways except::
a.
b.
c.
d.
e.
day care center for employee children on business premises
full reimbursement for qualified employee expenses for dependent care
reimbursement for an after-school tutoring program for a child under 13
only partial reimbursement for qualified employee expenses for dependent care
contract with a nearby day care provider
Answer: C [p. 402]
Application
54.7
The average age of employees at Baker Manufacturing is close to 30 and about two-thirds
of current employees have children under age 10 at home. Most of these employees earn
relatively low wages. The remaining employees have no dependent care needs. Baker
Manufacturing is considering installing a dependent care assistance plan as an employee
benefit. The advantages to Baker Manufacturing of doing so include which of the following:
a. the plan could be funded by employee salary reductions instead of paid directly by
Baker Manufacturing
b. all employees of Baker Manufacturing are likely to see dependent care assistance as a
valuable part of their employee benefits
c. Baker Manufacturing does not have to provide on-site care facilities, employees can
use a wide variety of methods to secure qualified child care services
d. a and b
e. a and c
Answer: E [p. 401]
54.8
As an unincorporated business, Splendid Textiles cannot offer a dependent care plan that
covers the three partners in the business as well as regular employees.
a. true
b. false
Answer: B [p. 403]
54.9
Babcock Industries reimbursed Anna Hopkins $4,500 for child care expenses for her 2and 4-year old sons this year. Anna’s full cost for day care, however, was $6,000. Which
of the following is true for Anna?
a. Anna cannot take advantage of the child care credit on her personal income tax return
because she participates in her employer’s dependent care plan
b. $6,000 of Anna’s child care expenses qualify for the child care credit on her personal
income tax return
c. $4,500 of Anna’s child care expenses qualify for the child care credit on her personal
income tax return
d. $3,000 of Anna’s child care expenses qualify for the child care credit on her personal
income tax return
e. $1,500 of Anna’s child care expenses qualify for the child care credit on her personal
income tax return
Answer: E [p. 403]
54.10 Bill Cummings is divorced and has custody of his two daughters, aged 4 and 8. This year,
Bill has spent $5,000 on the 4-year old’s preschool, $2,000 for after-school care for the 8year old, $500 for two days and nights at summer camp for the 8-year old, and $1,000 for a
sitter to pick up the children and care for them for one to two hours in the evening until he
gets home from work. The total dollar amount of qualified dependent care expenses that
Bill has incurred is:
a.
b.
c.
d.
e.
$5,000
$6,000
$7,000
$8,000
$8,500
Answer: D [p. 402 – All expenses except the overnight summer camp are qualified dependent care
expenses.]