The Dependent Care Assistance Program (DCAP) can be a significant benefit for eligible employees juggling work or school with dependent care responsibilities. If you’re wondering, “what is a dependent care assistance program and if it’s right for me?”, this comprehensive guide will break down everything you need to know.
Understanding the Dependent Care Assistance Program (DCAP)
The Dependent Care Assistance Program, often referred to as DCAP, is a pre-tax benefit offered by certain employers to help employees pay for eligible dependent care expenses. This program allows you to set aside a portion of your paycheck before taxes to cover costs related to caring for your qualifying dependents. This can lead to substantial savings on your federal income and FICA taxes.
Who is Eligible for DCAP?
Eligibility for DCAP is typically tied to your employer. Generally, it’s offered to benefits-eligible employees working for specific organizations. In the context of the original article, DCAP is specifically mentioned as being available to PEBB (Public Employees Benefits Board) benefits-eligible employees in Washington State who work at:
- State agencies
- Higher education institutions
- Community or technical colleges
It’s crucial to note that eligibility can be specific. For instance, employees working for cities, counties, ports, tribal governments, water districts, hospitals, and similar entities may not be eligible for this particular DCAP offering. Always verify your eligibility based on your employer’s specific benefits package.
How DCAP Can Help You Save
Childcare and elder care expenses can place a significant financial burden on families. DCAP is designed to alleviate this burden by allowing you to pay for these necessary expenses with pre-tax dollars. Here’s how it works and how you can benefit:
- Pre-Tax Savings: When you enroll in DCAP, you elect a contribution amount that is deducted from your paycheck before taxes are calculated. This reduces your taxable income for the year.
- Tax Savings Breakdown: By using pre-tax dollars, you can save on:
- Federal Income Tax: Depending on your tax bracket, this can be a saving of up to 37% on the elected amount.
- FICA Taxes (Social Security and Medicare): You save 7.65% on the amount you contribute to DCAP, as these contributions are also exempt from FICA taxes.
- Eligible Expenses: DCAP funds can be used for a range of dependent care services that allow you (and your spouse or state-registered domestic partner, if applicable) to work, look for work, or attend school full-time. Common eligible expenses include:
- Child daycare
- Preschool
- Babysitting
- Elder daycare
- Registration fees related to care
Defining a Qualifying Dependent
To utilize DCAP funds, the person receiving care must meet the definition of a “qualifying dependent.” According to DCAP guidelines, a qualifying dependent is:
- Children Age 12 or Younger: Your child who is age 12 or under and lives with you.
- Incapacitated Individuals Age 13 or Older: Your dependent who is age 13 or older, physically or mentally incapable of self-care, and regularly spends at least eight hours each day in your household. This could include an elderly parent or another adult dependent.
It’s important to ensure your dependent meets these criteria to ensure your expenses are eligible for reimbursement under the DCAP.
Enrollment in DCAP: When and How
Enrolling in DCAP typically occurs during specific enrollment periods or when you become newly eligible for benefits. Here are common enrollment scenarios:
Open Enrollment
This is the most common time to enroll in DCAP. Employers usually have an annual open enrollment period where you can elect your benefits for the upcoming plan year. If you wish to participate in DCAP for the following year, you must enroll during this open enrollment period. It’s crucial to remember that DCAP enrollment does not automatically renew each year. You must actively re-enroll during each open enrollment if you want to continue participating.
Initial Benefits Eligibility
When you first become eligible for employee benefits with a participating employer, you generally have a window to enroll in benefits, including DCAP. If you are a new employee and DCAP is of interest, make sure to enroll during your initial enrollment period.
Special Enrollment Events
Certain qualifying life events may trigger a special enrollment period, allowing you to enroll in or modify your DCAP election outside of the standard open enrollment. These events often include:
- Birth of a child
- Adoption
- Marriage
- Divorce
- Death of a spouse or dependent
Note for University of Washington and Washington State University Employees: Enrollment for employees of these institutions is typically managed through workday systems. Consult your university’s HR or benefits department for specific enrollment instructions.
DCAP Contribution Limits
There are limits to how much you can contribute to a DCAP account annually. Understanding these limits is essential for planning your contributions effectively.
- Minimum Contribution: The minimum annual contribution is generally set, for example, at $120.
- Maximum Contributions (Annual):
- Single or Joint Filers: The annual maximum contribution is often capped at $5,000 for individuals who are single or married couples filing jointly.
- Married Filing Separately: For married individuals filing separate income tax returns, the annual maximum is typically $2,500 per participant.
To estimate your potential tax savings based on your contribution, you can utilize online tools like the Navia Benefit Solutions Tax Savings Calculator.
Important Note on Election Changes: Once the plan year begins, you generally cannot change your elected contribution amount unless you experience a qualifying event that allows for a special enrollment. Any election changes must be consistent with the qualifying event.
Submitting DCAP Claims for Reimbursement
After incurring eligible dependent care expenses, you will need to submit a claim to request reimbursement from your DCAP account. Navia Benefit Solutions is often the administrator for DCAP programs, and they offer multiple convenient ways to submit claims:
- Online Portal: Submit claims and manage your account through the Navia Benefit Solutions website: Navia Benefit Solutions.
- Navia Benefits Debit Card: In some cases, you may receive a debit card linked to your DCAP account for direct payment of eligible expenses.
- Mobile App: Utilize the Navia mobile app (available for iPhone and Android: download for iPhone or Android) to submit claims and manage your account on the go.
- Email: Submit claim forms and documentation via email to Navia claims.
- Fax: Fax your claims to 425-451-7002 or toll-free at 1-866-535-9227.
- Mail: Send claim forms and documentation via mail to: Navia Benefit Solutions, PO Box 53250, Bellevue, WA 98015-3250.
You can typically begin submitting claims for expenses incurred from January 1st of the plan year. However, reimbursements are limited to the funds currently available in your DCAP account. Services must be provided before you can seek reimbursement.
DCAP Funds Deadline and Account Closure
It’s vital to be aware of the deadlines associated with your DCAP funds to avoid forfeiting any unused money.
- Expense Deadline: Eligible dependent care expenses must be incurred by December 31st of each plan year.
- Claim Submission Deadline: You must submit all claims for reimbursement to Navia Benefit Solutions no later than March 31st of the following year.
- Account Closure: Your DCAP account typically closes on March 31st of the year following the plan year, unless you re-enroll for the subsequent plan year.
- Forfeiture of Funds: Any funds remaining in your account after the March 31st deadline, and if you did not re-enroll for the following year, will be forfeited according to IRS regulations and returned to the Health Care Authority. Once forfeited, these funds cannot be claimed.
DCAP Funds and Termination of Employment
If you leave your employment and have unspent DCAP funds, you can still submit claims for eligible expenses incurred through December 31st of the plan year as long as those expenses allowed you to work, look for work, or attend school full-time during that time. You have until the claims run-out period (typically March 31st of the following year) to submit these claims, up to your remaining account balance. You cannot incur new eligible expenses after December 31st of the plan year if you are no longer employed and seeking to use DCAP funds from that plan year. It’s important to note that there are no continuation coverage rights for DCAP after termination of employment.
For detailed information regarding the end of coverage, consult the DCAP Enrollment Guide on Navia’s website or contact Navia customer service directly at 1-800-669-3539 or via email at email Navia customer service.
By understanding the intricacies of the Dependent Care Assistance Program, you can take full advantage of this valuable benefit and achieve significant tax savings while managing your dependent care expenses. Take the time to determine your eligibility, understand the rules, and enroll to start saving today.
