That depends on the amount you elected to have contributed to the flexible spending arrangement. The exclusion from income for employer-provided benefits can be as high as $5,000, while the credit for dependent care expenses is based on annual dollar limits of $3,000 for one person and $6,000 for two or more persons. You must reduce those dollar limits by the amount of excludible dependent care benefits. If you had expenses that you paid yourself and the employer provided benefits were less than the applicable dollar limit, you can also claim the credit. Complete Part III of either Form 2441 (PDF), Child and Dependent Care Expenses, or Form 1040A, Schedule 2 (PDF), Child and Dependent Care Expenses for Form 1040A Filers, to determine the excluded benefits and whether you can claim the credit.

Change. The applicable percentage and allowable employment-related expenses increase beginning in 2003. The maximum applicable percentage is 35 percent and the allowable employment-related expenses are $3,000 for one qualifying child and $6,000 for two or more qualifying children (Code Sec. 21, as amended by the Economic Growth and Tax Relief Reconciliation Act of 2001). Thus, the maximum credit is $1,050 for one qualifying child and $2,100 for two or more qualifying children.

References:

• Form 2441 (PDF), Child and Dependent Care Expenses
• Instructions for Form 2441, Child and Dependent Care Expenses
• Publication 503, Child and Dependent Care Expenses
• Tax Topic 602, Child and dependent care credits

If the omission was simply a clerical oversight, you may not claim the child care credit. If the flexible spending account was an eligible plan under Internal Revenue Code Section 125, the amount of the salary reduction that was contributed to your account should appear in box 10 of your Form W-2. Request a corrected Form W-2 from your employer.

You may claim the child care credit if the contribution to your flexible spending account was less than your annual dollar limitation for eligible expenses ($3,000 for one person, or $6,000 for two or more persons). Even if you cannot claim the credit, you must complete Part III of either Form 2441 (PDF), Child and Dependent Care Expenses, or Form 1040A, Schedule 2 (PDF), Child and Dependent Care Expenses for Form 1040A Filers, to exclude your employer provided benefits from your income. If the amount you paid into a flexible spending account reduced your wages in box 1 of Form W-2, it is considered an employer provided benefit.

References:

• Publication 503, Child and Dependent Care Expenses
• Tax Topic 602, Child and dependent care credit

The actual mechanism for this type of plan is an agreement to voluntarily reduce your salary in return for an employer-provided fringe benefit. These plans must be set up this way because you have a choice of whether to receive the cash wages or the benefits, which would make the benefit taxable to you. Therefore, the benefits are actually employer provided or funded. You are receiving a tax benefit because you are not paying taxes on the money that is set aside.

References:

• Publication 503, Child and Dependent Care Expenses
• Tax Topic 602, Child and dependent care credit

You must complete Part III of Form 2441 (PDF), Child and Dependent Care Expenses , (or Form 1040A, Schedule 2 (PDF), Child and Dependent Care Expenses for Form 1040A Filers) to claim the exclusion of the benefits from income even if you cannot claim the credit. Enter your total employer-provided dependent care benefits on line 12 (this amount should appear in box 10 of your Form W-2) and your qualified expenses on line 15. The last six lines of Part III will determine whether you can also take the credit and what your dollar limit is on qualified expenses. Also Complete Part I, Persons or Organizations Who Provided the Care.

References:

• Form 2441 (PDF), Child and Dependent Care Expenses
• Instructions for Form 2441, Child and Dependent Care Expenses
• Publication 503, Child and Dependent Care Expenses
• Tax Topic 602, Child and Dependent Care Credits

Generally, yes. When you complete Part III of Form 2441 (PDF), Child and Dependent Care Expenses, which you must do to claim excluded benefits, line 17 asks you to enter the smallest of:

If you had a loss from self-employment and no other earned income, your earned income would be $0, unless you can use one of the optional methods on Form 1040, Schedule SE (PDF), Self-Employment Tax. That would mean that the amount in box 10 of your wife's Form W-2 would have to be included in income. (For more information on the optional methods of computing self-employment tax, refer to Publication 533, Self-Employment Tax, or Instructions for Form 1040, Schedule SE, Self-Employment Tax.

The income considered to be earned by a spouse who is a full-time student or who is incapable of self-care is $250 per month if there's one qualifying individual in the household, and $500 a month if there are two or more qualifying individuals. However, this income is deemed to be earned only by one spouse for any given month. (Code Sec. 21 (d) (2)).

References:

• Form 2441 (PDF), Child and Dependent Care Expenses
• Instructions for Form 2441, Child and Dependent Care Expenses
• Publication 503, Child and Dependent Care Expenses
• Tax Topic 602, Child and Dependent Care Credits
• Code Section 21 (d) (2)

Yes. If the flexible spending account is providing you with a dependent care benefit, then it should be reported in box 10 of your Form W-2. These accounts are funded through a salary reduction, so the contribution to the account is considered an employer contribution. When you receive a dependent care benefit from your employer, you must complete Part III of Form 2441 (PDF), Child and Dependent Care Expenses, (or Form 1040A, Schedule 2 (PDF), Child and Dependent Care Expenses for Form 1040A Filers) to see if the benefits are fully excluded from income. You may be able to also claim a credit for child and dependent care expenses if the excluded benefits are less than the dollar limit on qualified expenses for the credit.

References:

• Publication 503, Child and Dependent Care Expenses
• Form 2441 (PDF), Child and Dependent Care Expenses
• Instructions for Form 2441, Child and Dependent Care Expenses
• Tax Topic 602, Child and dependent care credits

Information on Flexible Spending Account and Cafeteria Plans can be found in the following sources listed below:

References:

• Publication 15-B (PDF) , Employer's Tax 'Guide to Fringe Benefits
• Cafeteria Plan Explanations, Code and Regulations
• Cafeteria Plan Introduction Text
• Cafeteria is No Ruling Section
• Cafeteria Plan/Qualified Retirement Plan Hybrid Arrangements
• Change in Status Elections
• Health Flexible Spending Arrangements

The Internal Revenue Service does not specify a method for the documentation of reimbursable expenditures. Good accounting and business practices should dictate the type and sufficiency of documentation provided by employees who claim reimbursable expenses. Please review the plan document to determine if it specifies the type(s) of documentation acceptable.

References:

• Publication 583, Starting a Business and Keeping Records
• Publication 15-B (PDF), Employer's Tax Guide to Fringe Benefits
• Tax Topic 305, Recordkeeping

Yes, generally an employer may pay for health care costs of an employee as a nontaxable fringe benefit. Refer to Publication 535, Business Expenses , for a complete discussion of employee benefit programs.

References:

• Publication 535, Business Expenses
• Publication 15-B (PDF) , Employer's Tax Guide to Fringe Benefits

Health care costs paid directly to the medical facility is normally a nontaxable employee benefit provided that it is paid as part of an accident and health plan. Refer to Publication 535, Business Expenses, for more information on employee benefit programs.

References:

• Publication 535, Business Expenses
• Publication 15-B (PDF) , Employer's Tax Guide to Fringe Benefits

If an employer provides health insurance for the employees, the benefit provided is generally not taxable to the employee. An employer can generally deduct the cost of a group health plan on the "employee benefit programs" line of their business income tax return.

Group health plan defined: This (including a self-insured plan) is a plan that provides medical care to your employees, former employees, and their spouses and dependents. The plan can provide care directly or through insurance, reimbursement, or otherwise. The employer can exclude the cost of providing group health insurance to an employee from his or her wages.

References:

• Publication 525, Taxable and Nontaxable Income
• Publication 535, Business Expenses
• Publication 15-B (PDF) , Employer's Tax Guide to Fringe Benefits