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What is the Dependent Care Assistance Program?
A dependent care assistance program (DCAP) is an employee benefit program that helps staff cover the costs of caring for a dependent who qualifies for such assistance as specified by Internal Revenue Service (IRS) rules.
Employers can give their workers the choice of Dependent Care Benefits (reported on a W-2 form), which allows pre-tax money to be deducted from each paycheck to help cover the cost of caring for a child, spouse, or another dependent adult who lives in the employee’s household.
You can use the DCAP to set aside pretax money from your salary to assist with eligible child care or elder care costs.
How Many Dependents Can You Claim?
A taxpayer’s spouse, children, parents, siblings, and sisters are all considered to be dependents. In mathematical terms, the number of dependents equals the size of your personal or immediate family.
How Much Dependent Care Can I Deduct?
The range of employee contributions is determined by the employer; however, the IRS has set a $5,000 tax-free DCAP contribution cap. Taxable income includes DCAP aid over $5,000. It has to be noted that it is calculated as $2,500 per parent if married and filing separately.
Depending on the kind of plan formed, both employees and employers may contribute to a DCAP.
Your contribution as a whole cannot exceed the lesser of your earned income or the earned income of your spouse. Earned income is comprised of net earnings from self-employment as well as wages, salaries, tips, and other employee remuneration.
Also, See: Child Support Withholding
