Employer Dependent Care Assistance

As a bankruptcy attorney I am well aware of the large bite that can be taken out of a working parent’s budget for child care. Thus if a parent is fortunate enough to have an employer who assists with his or her daycare expenses the tax treatment of this assistance can make a significant difference. The employee can exclude up to $5,000.00 such assistance from taxable income ($2,500,00 for a married individual filing separately), provided this does not exceed the employee’s earned income or the lower paid spouse’s earned income in the case of a married couple. The expenses must be ones that would qualify under the child care credit rules, and unfortunately the amount of employer assistance for child care reduces the amount of expenses available for the child care tax credit.