Taxation & Coordination with Dependent Care Expense Accounts (DCEA)
For tax purposes, ECCAP awards are treated as additional income and will be subject to state and federal tax. However, if you participate in a Dependent Care Expense Account (DCEA), you may save on federal taxes attributed to your ECCAP award.
Dependent Care Expense Account (DCEA)
The Dependent Care Expense Account (DCEA) is a program that allows you to set aside between $100 and $5,000 in pre-tax funds, i.e., before federal taxes, from your paycheck to pay for child care expenses of dependent children 12 years and under. DCEA programs are governed by IRS rules and regulations. The advantage is that you pay no federal taxes on your contributions. For example, if you put $1,000 into your DCEA and are in a 20% federal tax bracket, you save $200 ($1000 x 20% = $200). However, if you do not spend all the money set aside for child care expenses, you will forfeit the money based on IRS regulations.
A DCEA can be set up only (1) during the annual Benefits Open Enrollment Period held in October for benefits starting the following January 1, or (2) within 90 days of a birth or adoption of a child, or (3) within 30 days of another corresponding mid-year qualifying status event.
Tax Implications for DCEA and ECCAP
By enrolling in a DCEA, your ECCAP award or a portion of it may not be subject to federal taxes. If you receive an ECCAP reimbursement during a period when you do not have a DCEA, those ECCAP funds are subject to both state and federal taxes.
Annual contributions to DCEA accounts cannot exceed $5,000 per calendar year, per family. If your spouse or partner has a DCEA plan at his/her place of employment, the total amount that your household may contribute to a DCEA, in any given calendar year, cannot exceed $5,000.
If you qualify for an ECCAP award of $6,000 and you elect to participate in a DCEA for the maximum amount of $5,000, then $5,000 would be exempt from federal taxes and $1,000 would be taxable.
If you receive an ECCAP award and have a DCEA, there may be additional tax if:
- Your ECCAP grant exceeds $5,000.
- You are married and file your taxes separately.
- You have custody of your child, your ex-spouse claims them on his/her taxes, or you alternate claiming the child on your taxes.
- Your spouse has no earned income for the tax year, even if your spouse is looking for work and receives unemployment compensation.
- You are in the process of divorce or are legally separated.
- You live in New Jersey or another state that imposes state tax on DCEA funds.
All information submitted is confidential and will be used only to administer the ECCAP.
If you have any questions about the ECCAP, please contact Lynn Herbine at 258-9118 or firstname.lastname@example.org.
When you have a question about your benefits, you can count on knowledgeable and helpful support from a member of our Benefits Team. Just call or send us an e-mail. We’re here to help!
While the University intends to continue each of the benefit plans, the University reserves the right to terminate or amend any plan, at any time, and for any reason.