IRS Notice 2021-26

IRS Issues Additional Guidance on the Tax Treatment of Dependent Care Benefits

With the optional increased annual limit ($10,500) for 2021 DCAP plan years, questions remained about how to administer the increased annual limits. Notice 2021-26 clarifies that (1) if DCAP benefits would have been excludable if used in a prior tax year, they remain excludable in 2021 and 2022, as applicable; and (2) carried over amounts and amounts subject to an extended claims period will not be considered when applying the annual DCAP maximum contribution limits for a subsequent plan year.

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