Just released – today’s compliance news addresses the taxation of dependent care benefits made available during the 2021 and 2022 tax years due to the application of either the carryover or the extension of a claims period made available under the Consolidated Appropriations Act (CAA)*.

The guidance seems to clarify that if these dependent care benefits would have been excluded from income if used during the taxable year ending in 2020 (or 2021 if applicable), these benefits will remain excludible from gross income and are not considered wages of the employee for 2021 and 2022. Additionally, the notice states that these amounts will not be taken into account for purposes of the application of the limits under Section 129 to the other dependent care benefits made available for the taxable years ending in 2021 and 2022**.

Governmental Affairs is reviewing these developments…clients should be on the lookout for additional communications from TASC in the near future.

Notice 2021-26: https://www.irs.gov/pub/irs-drop/n-21-26.pdf

*Public Law 116-260

**This is a change from how the Section 129 exclusion has been applied to grace period amounts prior to the CAA; previously, reimbursements of dependent care benefits in excess of the $5,000 statutory amount were taxable to recipients.