What Happens If You Exceed the IRC Limit?
Any excess child care benefits above the IRC dollar limit must be reported to you as taxable income and is subject to applicable payroll tax withholding.
For example, if you are a non-highly compensated employee and receive $6,000 in employer-provided child care benefits, $1,000 is considered "child care imputed income" and you will be subject to payroll withholding taxes on this amount. Upon exceeding the $5,000 limit for the year, the firm will begin imputing the income (i.e., your pay will be taxed on the excess on subsequent pay periods, as applicable).
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 $15 for each day:
- If the fair value (FV) of a back-up care day is $50*, the 20 days of care would be $50 times 20, for a total FV of $1,000.
* Note: This amount generally changes year to year.
- Your copayments for 20 days would total $300.
- Your copayments would be subtracted from the total FV, so the resulting FV of this employer-provided benefit would be $700.
- The $700 would be added to the amount you have contributed to the Dependent Care Spending Account.
- If the sum of the $700 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.
JPMorganChase will report the total value of your child-care benefits on Box 10 of your W-2 tax form.