What is the annual limit for an Employee Dependent Care Assistance account?

What is the annual limit for an Employee Dependent Care Assistance account?

• A. $5,000
• B. $7,500
• C. No limit
• D. $8,000

Answer: (A)

The correct response is that the annual limit for an Employee Dependent Care Assistance account is $5,000. This limit applies to the amount that an employee can set aside pre-tax to pay for eligible dependent care expenses under a dependent care flexible spending account (FSA). This limit is established by the Internal Revenue Service (IRS) and is designed to encourage employees to take advantage of tax savings while managing their childcare expenses. The $5,000 cap is particularly significant as it allows families to reduce their taxable income, thereby leading to potential tax savings. Additionally, it is important to note that this limit applies cumulatively for married couples filing jointly or for single parents, but is reduced to $2,500 if married individuals file separately. The other figures mentioned do not align with the current IRS regulations governing dependent care assistance accounts. Therefore, understanding these limits is essential for payroll professionals managing employee benefits and ensuring compliance with tax laws.

The correct response is that the annual limit for an Employee Dependent Care Assistance account is $5,000. This limit applies to the amount that an employee can set aside pre-tax to pay for eligible dependent care expenses under a dependent care flexible spending account (FSA).

This limit is established by the Internal Revenue Service (IRS) and is designed to encourage employees to take advantage of tax savings while managing their childcare expenses. The $5,000 cap is particularly significant as it allows families to reduce their taxable income, thereby leading to potential tax savings. Additionally, it is important to note that this limit applies cumulatively for married couples filing jointly or for single parents, but is reduced to $2,500 if married individuals file separately.

The other figures mentioned do not align with the current IRS regulations governing dependent care assistance accounts. Therefore, understanding these limits is essential for payroll professionals managing employee benefits and ensuring compliance with tax laws.