TAILIEUCHUNG - Lecture Employee benefits and retirement planning - Chapter 54: Dependent care assistance plans

This chapter discusses reimbursement of employees for day care and other dependent care expenses. An alternative to reimbursement is the provision of an actual day care center. Advantages and disadvantages are mentioned, followed by a brief section on design features. The tax implications section focuses on deductibility of plan costs and benefits. | What is it? A dependent care assistance plan Reimburses employees for day care and other dependent care expenses OR Provides an actual day care center or similar arrangement Copyright 2009, The National Underwriter Company When is it indicated? Employer wants to attract and retain employees who must find care for dependents during work hours To provide attractive tax benefit to all employees with dependent care expenses Copyright 2009, The National Underwriter Company Advantages Helpful in recruiting and retaining low-paid employees who have dependent care needs Provides tax advantages to employer; dependent care assistance is tax-free to employees Plan can be funded in part or total through FSA salary reductions Copyright 2009, The National Underwriter Company Disadvantages Fully-subsidized dependent care is costly; partially subsidized program may not attract and keep employees Nonparticipating employees may see dependent care as discriminatory Copyright 2009, The National Underwriter Company Design Features In-kind Day care and after school care on business premises Contract with nearby center Provide benefit through full or partial reimbursement of qualifying employee expenses for dependent care Copyright 2009, The National Underwriter Company Tax Implications Plan costs tax deductible to employer Benefits tax-free to participating employees If plan is discriminatory, plan benefits become taxable to highly compensated employees Dependent care assistance only available for Dependent child under age 13 Spouse or dependent physically or mentally unable to care for self Copyright 2009, The National Underwriter Company Tax Implications Limit on dollar amount of benefits Qualifying expenses for care alone, not education, above kindergarten level Dependent care assistance plan must be in writing Taxpayer must report name, address, and tax identification number of care provider Copyright 2009, The National Underwriter Company ERISA and Other Requirements Welfare benefit plan under ERISA Written plan document Summary plan description Designated plan administrator Formal claims procedure Employer must give statement of prior year expenses to employees using plan Copyright 2009, The National Underwriter Company Alternatives How to Install a Plan Extra compensation Bonuses Develop: Written plan Summary plan description Copyright 2009, The National Underwriter Company

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