DCAs were created with the purpose of helping employees pay for two things:
- Custodial care of a child (daycare): Eligible custodial care of a dependent (as defined by the IRS) under the age of 13 allows parents/parent to work. Common eligible expenses include daycare, after-school care, Pre-K, and day camps.
- Custodial care of an eligible adult: Custodial care of an adult dependent (as defined by the IRS,) that is mentally or physically incapable of caring for themselves, so that the other adult(s) can work. Requirements for these types of expenses are very specific and require medical documentation.
What expenses are NOT eligible for DCA?
- Expenses not directly related to custodial care, such as administrative fees, waiting list fees, supply fees, food/meals, etc.
- Education tuition for grades Kindergarten and above (Some after-school programs may qualify, even if educational in nature, if the primary purpose is custodial care of the child so the parent(s) can work)
- Overnight camps
- Custodial care that is not for the express purpose of allowing the parent(s) to work, such as babysitting while the parent(s) go to dinner, on vacation, etc.
- Any expenses related to medical/nursing care or food/meals -- only those expenses directly related to custodial care of the dependent
- Custodial care provided by a an ineligible caregiver
- Prop. Treas. Reg. §1.125-6(b)(3)(i) requires a third party that is "independent of the employee and the employee's spouse and dependents" to provide information describing the dependent care service, its date, and the amount of the expense.
Under the DCA rules, care provided by an employee's child under age 19 or by a person for whom the employee or spouse can claim a deduction (a qualifying child or qualifying relative) does not qualify for reimbursement. But a DCA participant's child who is age 19 or over (and who is not a qualifying child or qualifying relative) may perhaps be sufficiently independent to qualify under the substantiation requirement. See IRS Publication 969 for more information.