The Dependent Care Assistance Program (DeCAP) offers a significant financial benefit to eligible employees, allowing them to pay for qualified dependent care expenses using pre-tax dollars. By enrolling in DeCAP, you can reduce your taxable income and save money on essential care services for your loved ones. This guide will explain everything you need to know about DeCAP, including eligibility, enrollment, eligible expenses, and how to maximize your benefits.
Alt text: Dependent Care Assistance Program (DeCAP) logo, showcasing the program’s acronym in a clear and professional design.
Understanding the Dependent Care Assistance Program (DeCAP)
DeCAP is essentially a pre-tax benefit program designed to help employees cover the costs of caring for their dependents, such as children or elderly relatives, while they work or attend school full-time. It’s a valuable tool for working families and individuals who need reliable care for their dependents to maintain their employment.
By participating in DeCAP, you contribute a portion of your pre-tax salary into a dedicated account. This means the money is deducted from your paycheck before federal and Social Security taxes are calculated, effectively lowering your overall taxable income. You can then use these funds to reimburse yourself for eligible dependent care expenses incurred throughout the plan year.
Who is Eligible for DeCAP?
Eligibility for DeCAP is typically tied to your employer and health insurance coverage. In the context of New York City, employees who meet specific criteria are eligible to participate. Generally, to be eligible for DeCAP, employees must be covered by:
- New York City health insurance
- The Citywide contract, or
- The Management Benefits Fund
Specifically, employees from the following agencies are often included:
- Mayoralty
- NYC Health + Hospitals (H+H)
- Housing Authority
- City University of New York (CUNY)
- School Construction Authority (SCA)
- Department of Education (DOE)
It’s important to note that employees of cultural institutions, libraries, and DOE charter schools may have access to DeCAP programs through their individual institutions. If you belong to one of these organizations, it’s best to check with your Benefits Manager for detailed information about DeCAP availability and enrollment procedures specific to your workplace.
Calculate your potential savings with the DeCAP calculator
When Can You Enroll in DeCAP?
DeCAP enrollment typically occurs during an annual Open Enrollment Period. This period usually takes place from September to November each year, for coverage starting in the following calendar year.
For newly eligible employees, there’s a special enrollment window. You can enroll within 30 days of becoming eligible for City health benefits. Elections made during open enrollment or upon becoming newly eligible are generally effective from January 1st, or from the date of your first payroll deduction if you become eligible after the plan year begins.
Key Enrollment Points to Remember:
- Annual Open Enrollment is Crucial: Enrollment is not automatic each year. You must actively re-enroll during the annual Open Enrollment Period to continue participating in DeCAP.
- New Employee Enrollment Window: New employees have a 30-day window to enroll after becoming eligible for City health benefits.
- Enrollment Form and Documentation: To enroll, newly eligible employees need to submit a Flexible Spending Accounts (FSA) Program Enrollment/Change Form along with required documentation within 30 days of health benefits eligibility. Your annual contribution will be adjusted based on the remaining pay periods in the year.
How to Enroll in the Dependent Care Assistance Program
Enrolling in DeCAP is a straightforward process. To get started, you will need to obtain an FSA Enrollment/Change Form. You can typically find this form from:
- This official website (likely referring to the source website of the original article)
- The FSA Administrative Office
- Your agency’s benefits office
If you miss the 30-day enrollment window after becoming eligible, you’ll need to wait until the next annual Open Enrollment Period to enroll in DeCAP.
For easy access to the necessary forms, visit the Forms and Downloads page to download a Program Brochure and the Enrollment Form.
Once you have completed the form, it must be submitted electronically during the annual Open Enrollment Period through a secure file transfer service like http://nyc-fsa.leapfile.net.
If you require any assistance in filling out the Enrollment/Change Form, don’t hesitate to contact the FSA Administrative Office via email. You can usually find a contact link or email address on the benefits information page or by searching for “Email the FSA Program Administrative Office”.
What Expenses are Eligible Under DeCAP?
Understanding which expenses qualify for reimbursement under DeCAP is essential to effectively utilizing the program. DeCAP is designed to cover “eligible employment-related dependent care expenses.” These expenses must meet specific criteria:
Eligible Employment-Related Dependent Care Expense Definition: This refers to care services for one or more of your dependents (including related household services) that enable you and your spouse to work or attend school full-time. The care can be provided inside or outside your home.
Who Qualifies as a Dependent Care Recipient?
- Your Child: A son, daughter, stepson, or stepdaughter who is under 13 years old.
- Incapacitated Dependent: Any dependent, regardless of age, who is physically or mentally incapable of self-care and lives with you for over half the year. This can include a dependent parent, a child with disabilities of any age, or an incapacitated spouse. If claiming for a self-employed spouse, you will need to provide proof of their occupation, potentially with letterhead or notarization.
You can be reimbursed for services provided by a “Qualifying Caregiver.”
Who is a Qualifying Caregiver?
A Qualifying Caregiver is someone who provides eligible care services and is not any of the following:
- Your dependent (or someone you can claim as a dependent)
- Your spouse
- Your child or your spouse’s child, unless they are age 19 or older by the end of the plan year in which the services are provided.
What is a Qualifying Day Care Center?
A Qualifying Day Care Center includes licensed facilities like:
- Nursery schools
- Pre-schools
- Day camps (excluding overnight camps)
- Before- and after-school programs
- Child care centers
To qualify, the day care center must:
- Comply with all applicable local laws and regulations.
- Provide care for more than six individuals (excluding residents).
- Receive payment for services (regardless of profit status).
- Not be primarily for educational purposes (e.g., kindergarten or higher is generally not eligible, but preschool is).
Important Note: Under DeCAP, you can only claim expenses if you are the custodial parent of a dependent child. Child support payments are not reimbursable.
DeCAP Annual Contribution Limits
There are limits to how much you can contribute to your DeCAP account each year. These limits are set to comply with IRS regulations.
- Minimum Contribution: $500 annually
- Maximum Contribution: $5,000 annually
Keep in mind that the maximum contribution may be reduced to $2,500 if you are married and file separate federal income tax returns (unless legally separated) or if your spouse also contributes to a dependent care assistance program through their employer.
The elected contribution amount is a pre-tax salary reduction and includes a maximum annual administrative fee, which can be up to $48.
If you or your spouse earns less than $5,000 annually, your maximum benefit is limited to the lower of the two incomes.
Special Rule for Spouse in School or Incapacitated: If your spouse is a full-time student for at least five months of the plan year or is incapable of self-care for any month, your maximum contribution is limited to $250 per month for one dependent and $500 per month for two or more dependents.
* It’s important to note that the maximum contribution might be lower in certain situations, such as for highly compensated employees, to comply with non-discrimination rules.
Filing Claims and Getting Reimbursed through DeCAP
To get reimbursed for your dependent care expenses through DeCAP, you need to submit a DeCAP Claim Form. The claim process is designed to be simple.
How to File a DeCAP Claim:
- Itemize Expenses: On the Claim Form, list each expense and the dependent it applies to separately.
- Provider Signature: Have your dependent care provider sign and date the form. They must also include their name, address, and either their Federal Tax ID or Social Security Number.
Important Points Regarding Claims:
- No Receipts Needed: Unlike some other reimbursement programs, you generally do not need to submit receipts or billing statements for DeCAP claims.
- Timely Submission: Claims must be submitted electronically through secure mail to https://nyc-fsa.leapfile.net and received by the 15th of the month to be processed for reimbursement that month.
- Service Dates Matter: You will only be reimbursed for dependent care services that have already been provided and were incurred during the applicable Plan Year.
- No Advance Reimbursement: Reimbursement cannot be made before the service is actually provided.
- Work/School Requirement: Expenses incurred while you and/or your spouse are not working or attending school full-time (e.g., during sick leave, vacation) are not reimbursable.
- Claim Submission Deadline: There is a Claims Run-Out Period until February 28th following the end of the Plan Year to submit claims for services received during the previous plan year.
- Minimum Claim Amount: While any eligible expense amount is technically reimbursable, the total amount on a DeCAP Claim Form must be $50.00 or more, unless your account balance is less than $50.00.
- No Grace Period: DeCAP does not have a grace period for spending account funds beyond the Plan Year and the Claims Run-Out Period.
DeCAP Claim Denials and Appeals
If your claim is denied by the FSA Administrative Office, you will receive a denial letter explaining the reason. If you believe a denial is incorrect, you have the right to appeal.
DeCAP Claim Appeal Process:
- Written Appeal: You must file a written appeal with the Appeals Panel within 60 days of receiving the denial notice.
- Appeals Panel Review: The Appeals Panel will review your appeal and make a determination within 60 days of receiving your written notice.
DeCAP Reimbursement Process
Reimbursements for approved claims received by the 15th of the month are typically processed by the end of the month. Reimbursements are automatically deposited into the bank account you designated on your Enrollment/Change Form or Direct Deposit Form.
Important Reimbursement Details:
- Reimbursement Limits: Claims are only reimbursed up to the current balance in your DeCAP account. If your claim amount exceeds your balance, you will be reimbursed for the available amount, and the remaining portion will be carried over for payment in the following month, funds permitting.
- Year-End Balance: If a claim exceeds your balance at the end of the Plan Year, you will receive a check for the remaining balance in your account.
- Payment to Employee: Payments are made directly to you, the employee, not to the service provider.
DeCAP Account Statements
To help you track your DeCAP account, you will receive monthly statements. These statements will show:
- Your opening account balance
- All contributions made to your account
- Processed claims
- Monthly administrative fees (up to $4.00 per month)
- Your closing account balance
After the Claims Run-Out Period concludes, you will also receive an annual statement summarizing your total contributions and reimbursements for the entire Plan Year.
Furthermore, the total amount you contribute to DeCAP will be reported on your Form W-2, which you receive from your employer annually. Your gross income for federal tax purposes will be reduced by your DeCAP contributions.
Tax Form Notes:
- When filing state and city taxes, you will need to add back the amount listed as IRC 125 on your Form W-2 to your state/city gross wages.
- You must also attach Form 2441, Child and Dependent Care Expenses, to your Federal Form 1040 when filing your taxes to properly report your DeCAP benefits.
“Use It or Lose It” Rule and DeCAP Forfeiture
It is critical to understand the “Use It or Lose It” rule associated with DeCAP. Federal regulations mandate that any funds remaining in your DeCAP account at the end of each Plan Year (December 31st) will be forfeited if not used for eligible expenses and properly claimed within the Claims Run-Out Period.
Avoiding Forfeiture:
- Expense Estimation: Before enrolling, carefully estimate your anticipated eligible dependent care expenses for the upcoming Plan Year. Reviewing past expenses can be helpful in this process.
- Conservative Contribution: Based on your expense estimate, decide how much to contribute to DeCAP. It’s generally better to slightly underestimate than overestimate to avoid forfeiting funds.
- Claims Run-Out Period: Remember the Claims Run-Out Period until February 28th following the Plan Year end. Ensure you submit all eligible claims for services provided within the Plan Year by this deadline.
Important Note: Funds allocated to DeCAP cannot be transferred to other Flexible Spending Accounts, like a Health Care FSA (HCFSA), if you participate in both.
Making Changes to Your DeCAP Account: Qualifying Events
In certain situations, you may be able to make changes to your DeCAP contributions or dependent coverage outside of the annual Open Enrollment Period. These changes are generally permitted only if you experience a “Qualifying Event” as defined by the IRS.
Examples of Qualifying Events:
- Changes in Marital Status: Marriage, divorce, or annulment.
- Changes in Family Size: Birth or adoption of a child.
- Death: Death of a spouse or dependent.
- Dependent Ineligibility: A dependent ceasing to meet eligibility requirements (e.g., child turning 13).
- Employment Changes: Start or termination of employment for you or your spouse.
- Changes in Employment Status: Change from part-time to full-time status (or vice versa) for you or your spouse.
- Unpaid Leave of Absence: Taking an unpaid leave of absence by you or your spouse.
If you experience a Qualifying Event and need to change your DeCAP contributions or terminate your participation, you must notify the FSA Administrative Office directly. You’ll need to submit an FSA Enrollment/Change Form with appropriate documentation within 30 days of the Qualifying Event.
Important Notes on Changes:
- 30-Day Notification: Changes must be requested within 30 days of the Qualifying Event.
- Documentation Required: Proper documentation supporting the Qualifying Event is necessary.
- Multiple Qualifying Events: You can have more than one Qualifying Event in a Plan Year.
Agency Transfers and DeCAP:
If you transfer to a different agency within the City or to a City-related agency, it’s crucial to notify the FSA Program Administrative Office in writing at least 30 days before your transfer. This will ensure the continuation of your payroll deductions or allow for recalculation of deductions if needed.
DeCAP and Termination of Employment:
Upon termination of employment, your DeCAP contributions will stop as of your termination date or the last day of your employment. However, you can still submit claims for eligible expenses incurred during the Plan Year, as long as you and your spouse remain employed or are full-time students. You have until the Claims Run-Out Period (February 28th of the following year) to submit these claims.
Missed Payroll Deductions:
If payroll deductions for DeCAP are missed for any reason, your annual contribution allocation will be reduced by the amount of the missed deductions. You cannot increase future deductions to compensate for missed ones. It is important to promptly notify the FSA Administrative Office if you notice deductions are not being taken from your paycheck.
DeCAP in Case of Death:
In the unfortunate event of your death during the Plan Year, the termination conditions mentioned above will apply. Claims for services provided before your death can be submitted by your spouse or estate and will be paid accordingly. Documentation will be required in such cases.
How DeCAP Affects Other Benefits and Taxes
Understanding how DeCAP interacts with other benefits and taxes is important for making informed financial decisions.
Social Security Tax (FICA):
Contributing to DeCAP may slightly reduce your Social Security taxes because your taxable income is lowered. This could potentially result in a minimal decrease in Social Security benefits upon retirement, based on current Social Security laws. However, the tax savings you receive now are generally considered to outweigh this minimal long-term effect.
Pension and Deferred Compensation:
DeCAP contributions have no impact on your pension contributions or benefits. Similarly, participation in DeCAP does not affect your participation in 457, 401(k), Roth 401(k), or 403(b) retirement savings plans.
DeCAP and Income Taxes:
Contributions to DeCAP are made on a pre-tax basis through payroll deductions. This reduces your gross income for federal income tax and Social Security tax (FICA) purposes. However, DeCAP contributions do not affect your state or local taxes.
DeCAP vs. Federal Dependent Care Tax Credit:
It’s important to understand the relationship between DeCAP and the Federal Dependent Care Tax Credit. The types of expenses that qualify as “eligible employment-related expenses” are generally similar for both. However, you cannot “double dip” – expenses paid or reimbursed through DeCAP cannot be used to claim the Federal Dependent Care Tax Credit, and vice versa.
Payments received from DeCAP will reduce the amount you can claim for the Federal Dependent Care Tax Credit dollar-for-dollar.
Choosing Between DeCAP and the Tax Credit:
Deciding whether to utilize DeCAP or the Federal Dependent Care Tax Credit (or both) depends on your individual financial situation.
- DeCAP Advantages: DeCAP offers immediate tax savings throughout the year by reducing your taxable income and providing reimbursements as you incur expenses. It also allows for a higher maximum benefit for one dependent ($5,000) compared to the tax credit.
- Federal Dependent Care Tax Credit Advantages: The tax credit directly reduces your actual tax liability, potentially offering greater savings for some individuals, particularly those with lower incomes or higher tax brackets. The tax credit also has a higher benefit limit for two or more dependents ($6,000).
Scenario Example:
Alt text: Example scenario comparing tax savings between using DeCAP and the Federal Dependent Care Tax Credit for a married employee with two dependents and a family income of $70,000.
As illustrated in the example scenario, the best option depends on your specific income, tax bracket, and dependent care expenses. It is recommended to consult with a tax advisor to determine the most advantageous approach for your individual financial situation.
Using Both DeCAP and the Tax Credit:
It is possible to use both DeCAP and the Federal Dependent Care Tax Credit in the same tax year, but you must be careful to avoid claiming the same expenses twice. Ensure that:
- Your eligible expenses for the tax credit are reduced by the amount you receive from DeCAP in the same tax year.
- You do not claim the same dependent care expenses for both DeCAP reimbursement and the tax credit.
Alt text: “Related Links” image, indicating further resources and links to helpful information about DeCAP and related programs.
Calculate your Potential Savings Under the DeCAP Program
Learn more about your W-2 Wage and Tax Statement from the Office of Payroll Administration
Learn more about Social Security from the Office of Payroll Administration
