n-05-61.pdf

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Section 129 – Reporting Requirements for Dependent Care Assistance
Programs
(Also, § 125)

Part III - Administrative, Procedural, and Miscellaneous

Notice 2005-61
PURPOSE

The purpose of this notice is to clarify the Form W-2 reporting requirements
when an employer has amended a cafeteria plan document to provide a grace
period for qualified dependent care assistance immediately following the end of a
cafeteria plan year.
BACKGROUND AND APPLICATION
Notice 2005-42, 2005-23 I.R.B. 1204, modifies the application of the rule
prohibiting deferred compensation under a cafeteria plan. That notice permits an
employer to amend a cafeteria plan document to provide a grace period
immediately following the end of each plan year during which unused benefits or
contributions remaining at the end of the plan year, including contributions for
dependent care assistance as described in § 129, may be used to pay or
reimburse expenses incurred during the grace period.
Notice 89-111, 1989-2 C.B. 449, amplified, Notice 90-66, 1990-2 C.B. 350
(extending Notice 89-111 to years following 1989), provides guidance concerning
the reporting requirements for dependent care assistance furnished by an
employer to an employee under a qualified dependent care assistance program.
The notice states that in a cash reimbursement arrangement, the amount
reported on Form W-2, Wage and Tax Statement, is the total amount of cash

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reimbursement furnished to the employee during the calendar year. However, if
the employer does not know the actual total amount of cash reimbursement at
the time the Form W-2 is prepared, the employer may report a reasonable
estimate of the total amount on Form W-2. Notice 89-111 states that for a salary
reduction arrangement under a § 125 cafeteria plan, the amount electively
contributed by an employee for the year for dependent care assistance (plus any
employer matching contributions attributable thereto) will be considered a
reasonable estimate.
An employer that amends its cafeteria plan to provide a grace period for
dependent care assistance may continue to rely on Notice 89-111, by reporting in
Box 10 of Form W-2 the salary reduction amount elected by the employee for the
year for dependent care assistance (plus any employer matching contributions
attributable thereto). For example, suppose an employer amends its calendar
year cafeteria plan to permit a grace period for dependent care assistance until
March 15 of the subsequent year, that an employee elects salary reduction of
$5,000 for dependent care assistance for the 2005 calendar year and elects an
additional $5,000 salary reduction for dependent care assistance for the 2006
calendar year, and that the employee has $500 of dependent care contributions
remaining unused at the end of the 2005 plan year, which is available to
reimburse dependent care expenses incurred during the grace period. For the
2005 calendar year, the employer may report in Box 10 of Form W-2 the $5,000
salary reduction amount elected by the employee for dependent care assistance
in 2005. Similarly, for the 2006 calendar year, the employer may report in Box 10

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of Form W-2 the $5,000 salary reduction amount elected by the employee for
dependent care assistance in 2006.
EFFECT ON OTHER DOCUMENTS
Notice 89-111, 1989-2 C.B. 449, is amplified.
DRAFTING INFORMATION

The principal author of this notice is Elizabeth Purcell of the Office of
Division Counsel/Associate Chief Counsel (Tax Exempt and Government
Entities). For further information regarding this notice contact Ms. Purcell on
(202) 622-6080 (not a toll-free call).