Section 129 of the tax code permits employees to exclude up to $5,000 from gross income to pay for dependent care expenses. These arrangements, required to be established by a written document, are referred to as Dependent Care Assistance Programs (DCAPs). In many ways they function similarly to health flexible spending accounts (FSAs), so they are frequently referred to as “dependent care flex accounts.” In this issue brief, we will discuss the various rules to be aware of when implementing and administering a DCAP.
