DCAP concerns addressed for 2½ month grace period

Employers concerned about allowing the 2½ month grace period for Dependent Care Assistance Plans (DCAPs) can breathe a sigh of relief after the Treasury Department and the IRS published Notice 2005-61 on September 7, 2005, which addressed Form W-2 reporting requirements.

This notice provides an opportunity for employers to amend their cafeteria plan documents and add a grace period of up to 2½ month following the end of the plan year, for unused balances on DCAP plans. The notice allows employers who adopt this grace period to report, in Box 10 of Form W-2, the annual amount of participant (plus any employer) contributions to the Dependent Care Spending Account, regardless of whether those contributions are used to pay expenses incurred in the first 2½ months of the following year. In addition, for the following year, an employer need only report, in Box 10 of Form W-2, the annual amount of contributions into the Dependent Care Spending Account for that year.

For more information about the grace period and the questions behind it, please view the News Room article, FSA Grace period provides more time, questions. For a review on what is available, along with the ability to see what employers and employees can save with these accounts, call 800-779-6384 or visit our website at www.benefitsolved.com. In addition, Infinisource clients will soon receive additional guidance on options for administering grace periods.

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