DCAP (Dependent Care Assistance Plan)
First, are you spending money on child care or care for one or more dependents? Does your work offer a DCAP (Dependent Care Assistance Plan) deduction? You need to sign up!
Who qualifies for dependent care
- children (including adopted children, step children, and foster children) under age 13 who qualify as your tax dependents,
- a spouse who is physically or mentally incapable of self-care, and any person for whom you may claim a dependency exemption who is 13 years of age or older, is physically or mentally incapable of self-care, and regularly spends 8 hours each day in your household.
- $5,000 annual maximum if filing status is single or married
- $2,500 for each participant filing separately
- Amount may not exceed the lesser of your earned income or the earned income of your spouse.
Lets say you are spending $5000 a year in child care expenses and you are paying 15% of your income in federal tax withholding. Signing up for this plan will save you $750.00 a year in tax savings. So often people forget that they can save money by signing up for these type of plans.
One important point to make with the DCAP deductions...it is a "use the money or lose the money" deduction. This means that if you elect to have $5000 deducted from your paycheck for DCAP you need to spend the entire $5000 on dependent care expenses! If your dependent expenses come to only $4000 it is going to still cost you the $5000 you elected.
For more scoop on this deduction ask your Human Resources rep.