IRS Releases Guidance on Dependent Care Benefits - Carryovers


On May 10th, the IRS released Notice 2021-26. This notice addresses the taxation of dependent care benefits, provided through a dependent care assistance program, available in taxable years ending in 2021 and 2022 due to the application of either the carryover or the extension of a claims period under 214 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the Act).

Notice 2021-25 also clarifies that if these dependent care benefits would have been excluded from income if used during the preceding taxable year (that is, during the taxable year ending in 2020 or 2021, as applicable), they will remain excludable from gross income and are not wages of the employee for the taxable years ending in 2021 and 2022.

Lastly, Notice 2021-26 clarifies that these benefits will not be taken into account for purposes of the application of the limits under 129 of the Internal Revenue Code (Code) to other dependent care benefits available for the taxable years ending in 2021 and 2022.

For a copy of Notice 2021-26, Click Here!

If you have any comments or questions regarding any of the above information, please do not hesitate to contact your business consultant or call us at 630-775-8310.

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