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IRS Issues Guidance On Dependent Care

Unused dependent care from tax years 2020 or 2021 can be carried over to tax year 2021 and 2022 without being considered as employee wages, the Internal Revenue Service said this week. The guidance in Notice 2021-26 PDF was issued under terms of the coronavirus-related legislation—the Taxpayer Certainty and Disaster Tax Relief Act of 2020. 

Many people were unable to use the money they set aside in their dependent care assistance programs in 2020 and 2021 because of the pandemic. Under these plans, employees set aside pre-tax wages and their expenses are reimbursed from the dependent care assistance program.

Carryovers of this money is generally not permitted, except for a two-and-half-month grace period.

The 2020 law permitted employers to amend their plans to permit carryovers. The new notice says if the amounts carried over were excludable from income in 2020 or 2012, they will not be taxable in 2021 and 2022.

Bob Scott
Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards.  Scott has made frequent appearances as a speaker, moderator and panelist and events serving tax and accounting professionals. He  has a strong background in computer journalism as an editor with two former trade publications, Computer+Software News and MIS Week and spent several years with weekly and daily newspapers in Morris County New Jersey prior to that.  A graduate of Indiana University with a degree in journalism, Bob is a native of Madison, Ind
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