Why offer a dependent care assistance program --a DCAP?

The family needs of employees create significant interest and response from private employers and government agencies. Employers who are aware of the necessity of providing quality day care services for employees with pre-school-age children have established day care facilities on the company premises or have expanded existing off-site programs as part of their overall employee benefit packages.

In addition, some employers reimburse employees for a portion of the expenses of providing day care for a dependent who is physically or mentally incapable of caring for himself or herself, such as an elderly parent or a child with a disability. These services aid employees and their families, and the employees are able to exclude from gross income the value of the employer-provided services.

DCAP defined. A dependent care assistance program (DCAP) is a written nondiscriminatory plan established by an employer to provide child care or dependent care services. The value of the child or dependent care provided by the employer generally is not included in an employee's gross income as long as it does not exceed $5,000 ($2,500 if married and filing separately). DCAPs can produce substantial tax benefits for both the employer and the employee,

Relationship to cafeteria plans and FSAs. Dependent care can also be provided through cafeteria plans and flexible spending arrangements.

Reprinted with permission. © CCH