What Happens If You Exceed the Limit?
The IRS does not limit the benefits you can receive. Instead, the IRS limits how much of those benefits you can receive tax-free. If the value of your tax-free benefits exceeds the limit ($5,000 per family per year, or $2,900 if you are considered to be highly compensated (W-2 compensation $120,000 or more in 2019)), you will owe taxes on the value of the benefits over the limit.
For example, if you receive $6,000 in employer-provided child care benefits and your annual limit is $5,000, you would be $1,000 over the annual limit. The $1,000 is what you would owe taxes on, and this amount is called "child care imputed income."
For a more detailed example, say you received 20 days of back-up child care during the year, and that your TACC makes your copayment $10 for each day:
- The fair market value (FMV) of the 20 days of care would be $60 times 20, for a total FMV of $1,200.
- Your copayments for 20 days would total $200.
- Your copayments would be subtracted from the total FMV, so the resulting FMV of this employer-provided benefit would be $1,000.
- The $1,000 FMV would be added to the amount you have contributed to the Dependent Care Spending Account.
- If the sum of the FMV and your contributions to the Dependent Care Spending Account exceeds the annual limit, the excess would be considered child care imputed income, and you would owe taxes on that amount.
JPMorgan Chase will report the total value of your child-care benefits on Box 10 of your W-2 tax form.