DCAP: Tax savings for child and elder care
The dependent care assistance program (DCAP) helps you pay for child care and elder care by allowing you to set aside a portion of your salary for eligible expenses. The money you set aside isn’t taxed, so you save money on services like preschool, day care, nanny fees, care for a person who is disabled, and other similar services.
You choose how much of your salary goes into your DCAP fund, up to a yearly maximum of $5,000. However, you need to choose this amount carefully. DCAP funds are “use it or lose it” funds, and you must spend your entire yearly allotment before December 31 — or you’ll lose your money.
Enroll or re-enroll in DCAP
Enrollment is effective for one tax year only and does not automatically renew. To continue DCAP, you must re-enroll each year. The DCAP accounts for UW employees are managed by Navia Benefits Solutions, a local company that administers benefits for organizations.
You’re eligible for DCAP as long as you’re eligible for PEBB benefits. However, if you have a stay-at-home spouse, you can’t enroll in DCAP. You also can’t enroll if you are a student whose wages are exempt from Social Security and Medicare or if you receive no income from a U.S.-based source.
When you can enroll
You may enroll in DCAP at the following times:
- During your first 31 days of employment
- During your first 31 days of becoming eligible for PEBB benefits
- During annual open enrollment, from November 1 – 30
- Within 60 days of a qualifying life event, such as a marriage or birth
If you enroll during the open enrollment period, your DCAP payroll deductions begin on the first paycheck following January 1. You can spend your funds as soon as they are deposited into your account.
If you enroll due to a qualifying life event, your participation in the plan begins on the first day of the following month. Your payroll deductions begin in one to two pay periods, and the funds are available as soon as they are deposited into your DCAP account.
How to enroll
To enroll you need to print and fill-out the enrollment form. When filling it out, you have to specify the dollar amount of your yearly DCAP allotment and paycheck deduction. The maximum yearly allotment is $5,000 (or $2,500 if married and filing separately). To calculate your paycheck deduction, divide your allotment amount by the number of paychecks you receive each year (most UW employees receive 24 paychecks each year).
Re-enroll in DCAP each year
DCAP accounts don’t continue automatically. If you’re enrolled in DCAP and want to continue, you must re-enroll each year during open enrollment, November 1 – 30. Re-enrolling is the same process as your initial enrollment: you specify an allotment and paycheck deduction then submit the form.
How DCAP works
While DCAP may not cover your entire child care or elder care costs, it does give you a helpful payment option that reduces your federal tax obligation. The money deducted from your paycheck and put into your DCAP fund isn’t taxed — you don’t pay Social Security, Medicare, or federal taxes on that money.
This makes the cost of care cheaper. Many types of child care are eligible including babysitting, au pair services, after school care, day camps, care by a relative, and others. Elder care costs and services for people who are disabled are also eligible.
But before enrolling in DCAP, you need to accurately estimate your care costs. The maximum amount you can set aside is $5,000 (or $2,500 if you and your spouse file separate tax returns). Since care costs are usually expensive, you may have no trouble spending your entire DCAP amount each year. However, you don’t want to have any money left over at the end of the year because you’re required to forfeit any unspent funds. Once you enroll, you can’t change your amount until next year (unless you experience a qualifying life event).
Once you know your DCAP amount for the year, you’re ready to enroll. The amount you elect will be deducted from your paycheck in equal increments throughout the calendar year.
What dependents qualify?
A qualifying dependent child must live with you and be 12 years old or younger. Children 13 and older only qualify if they are physically or mentally incapable of caring for themselves and if they regularly spend at least eight hours each day in your household.
Spouses who can’t care for themselves also qualify, as do any other dependent who is physically or mentally incapable of self care.
Any qualified dependent must be recognized by the Internal Revenue Service (IRS) as a dependent.
Using your DCAP account
You can begin submitting reimbursement claims for eligible expenses on or after the first day of your plan year, January 1. You can only be reimbursed up to the dollar amount you have in your DCAP account at the time you request reimbursement. You may submit claims for services as often as you like, but not until after the services have been provided.
Eligible medical expenses
DCAP funds can cover both child care expenses and elder care expenses. To learn which specific types of expenses are eligible and which are not eligible, see the list of eligible and ineligible DCAP expenses.
Submit a claim for reimbursement
Once you incur expenses, you have several options for submitting a reimbursement claim. Claims are processed by Navia, and you can submit a claim through your online profile, using the MyNavia mobile app, by sending an email, or by mailing a completed claim form.
Deadline for spending DCAP funds
Each year you must use all your DCAP funds. Otherwise, you’ll lose your money. Any services that you want to pay for using DCAP funds must occur by December 31. You have until March 31 of the following year to submit all claims for reimbursement.
Qualifying life events for changes or special enrollment
During annual open enrollment, any eligible employee can enroll or re-enroll in DCAP and change their DCAP amount for the forthcoming year. To make changes during other times of the year or to enroll during other times of the year, you must experience a qualifying life event.
Once the event occurs, you have 60 days to make a change or enroll. Events that qualify include:
- Marriage or domestic partner registration
- Birth or adoption
- Change in employment status
- Change in dependent care provider cost
- Legal custody or guardianship of a child
- Disability of a child
If you’re unsure whether or not an event qualifies, contact Benefits. Events that qualify are defined by the state in the Washington Administrative Code 182-08-199.