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Can an Employer/Owner Participate in Section 129 DCAP FSA Plans?

Can an employer participate in their own Section 129 DCAP FSA?

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As the owner and employer of a small business, can you also participate in and take advantage of the benefits in a Section 129 DCAP FSA?

Yes, when you know how and follow the rules. Core Documents explains.

In general, participation in a Section 129 DCAP FSA may be extended to any common-law employee of the employer.* Self-employed individuals can also participate in a DCAP, though not through a cafeteria plan.** Thus, sole proprietors, partners, more-than-2% shareholders in a Subchapter S corporation, and other self-employed persons can participate in a DCAP that is funded outside of a cafeteria plan.

For example, an employer could have a DCAP that provides benefits to these individuals and is financed entirely by the employer outside of a cafeteria plan (i.e., with no salary reductions or other contributions from the individuals).

A Section 129 DCAP FSA that covers such individuals might be a “stand-alone” plan that is separate from the DCAP under the employer’s cafeteria plan. Another option might be to use a single DCAP for both the employees who are eligible for the cafeteria plan (i.e., those who make salary reductions) and those self-employed individuals who are not eligible for the cafeteria plan. The DCAP document would need to differentiate the funding mechanisms for the two groups.

Note that the employee must support the tax-free nature of dependent care assistance benefits by completing Form 2441, which is attached to his or her Form 1040 or Form 1040A. Form 2441 requires the employee amount, which effectively requires employees to ensure that no double federal tax benefits are being taken for the same expense.

* See Code § 129(d)(1).

** For purposes of the dependent care assistance rules, the term “employee” includes a self-employed person within the meaning of Code § 401(c)(1), which relates to self-employed individuals. See Code § 129(e)(3). But for cafeteria plan purposes, these individuals are not considered to be employees (see Section IX) and may not participate in a DCAP with salary reduction dollars. See Code § 125(d)(1) and Prop. Treas. Reg. § 1.125-1(g)(2). Note that expenses relating to self-employment qualify as employment-related expenses under the DCAP rules. Treas. Reg. § 1.21-1(c)(1).

 How To Set Up a Dependent Care Assistance Plan FSA

3D_0006_dcapCore Documents can provide you with everything you need to establish a Section 129 Dependent Care Assistance FSA including the: Plan Document, Summary Plan Description, Election/Claim Forms and a complete Do-It-Yourself Administration Guide. The basic PDF plan document package delivered via email is only $129, the deluxe printed plan document package in 3-ring binder plus the PDF email version is $179.00.

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 Optional Administration Services Available

Core Documents will notify you when there are sufficient changes in the Code to require amending and restating your Plan.  You can amend and update anytime for just $99, and only when necessary which is the most cost effective way to establish and maintain a Section 129 Dependent Care Assistance Plan FSA.

Most complete document orders placed by 3 PM will be emailed out the same day Monday through Friday. Orders placed on weekends are emailed out Monday morning. Keep in mind that December, January, and February are our busiest months of the year and documents are processed in the order they are received. The Rush Order fee ($25) simply brings your document to the top of the stack to be processed immediately.


These articles will help you learn more about the Section 129 DCAP FSA plan document package:

Why Every Employer Should Have a Section 129 Dependent Care Assistance Plan (DCAP) Flexible Spending Account (FSA)

Tax Cuts and Jobs Act Update 12-15-2017: DCAPs survive

FAQ – Health FSA and Dependent Care Assistance Plan DCAP FSA



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