The National Directory of Certified Public Accountants

Ask A CPA - Fringe Benefits

Child And Dependent Care Plans

An employee can generally exclude from gross income up to $5,000 of benefits received under a dependent care assistance program each year. This limit is reduced to $2,500 for married employees filing separate returns. The employer can exclude the value of benefits from the employee's wages if you reasonably believe that the employee can exclude the benefits from gross income and qualify for the dependent care credit. The employer cannot exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program do not favor highly compensated employees.

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