What dependent care FSA testing?
The compliance problem many companies are ignoring by Sharon Whittle More and more companies are running into compliance problems with dependent care flexible spending account plans (FSAs). For example, due diligence performed on acquisition targets is increasingly likely to reveal that the testing required for dependent care FSAs has not been performed. Many plan sponsors are not even aware that tests must be passed in order for the employee to exclude contributions to the FSAs from income. Sections 125 and 129 provide for the accounts, and generally an employee may elect to have up to $5,000 a year put into a dependent care FSA. The employee may then use the money to pay for qualified dependent care expenses. The employee is not subject to federal income taxes, and in most locations, is also not subject to state or local taxes. In addition, there are no FICA taxes paid by the employee or employer on the funds set aside in the account. In order for employees and employers to take adva
