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Stanford Report, October 1, 1997

Total compensation - Dependent Care: 10/1/97

Important reminders about Dependent Care Spending Accounts

There are a few areas of Stanford's tax-free Dependent Care Spending Accounts (DCSA) that prompt the most questions. Some of those areas are addressed below. More information can be found at the BeneSphere website ( ) or in your Stanford Health & Welfare Summary Plan Description.

Documentation Requirements

Stanford requires each participant to document requests for dependent care reimbursement in the manner noted below. Because the IRS permits reimbursement only for actual services rendered during the calendar year, a canceled check is insufficient documentation -- it does not show when you received the services for which you paid. According to IRS guidelines, you must document the date of services, the amount paid and the provider of services.

These are the steps to ensure prompt reimbursement:

Eligible Day Care Expenses

Stanford employees frequently ask about daycare expenses that are eligible for tax-free reimbursement from a DCSA. Your DCSA is for qualified expenses that are necessary in order for you, or you and your spouse if you are married, to go to work.

Eligible dependents include any children under age 13 whom you claim as dependents for income tax purposes, or those dependents who live with you who may be physically or mentally incapable of caring for themselves.

Because the care must be necessary for you to work, the law requires that eligible care must be primarily custodial as opposed to educational. Generally, care for children from newborns to age 6 is presumed to be primarily custodial. Care for children from age 6 to age 13, however, is harder to categorize because children this age are more likely to be involved in an enrichment or educational experience after school. So, for an older child, eligible after-school care can be supervised play time, child care in your home, summer day camp or after-school day care provided by a family member whom you do not claim as a dependent for income tax. In contrast, math, reading, computer tutorial programs, martial arts classes, competitive after-school sports, or music lessons are examples of programs that are not primarily custodial and are not reimbursable from your DCSA. More detailed information about DCSA is available from BeneSphere's website at, or from Publication Nos. 502 and 503 from the IRS website
( ).

Dependent Children Losing Eligibility at Age 13

After your dependent child turns age 13, you may no longer receive tax-free reimbursement from your DCSA for this child's day care expenses. However, for employees who participate in a DCSA, a dependent child turning 13 (with subsequent loss of eligibility) constitutes a Change in Family Status. You then have 30 days from the child's birthday to reduce or discontinue your DCSA. You may call the Office of Total Compensation or SLAC Benefits Office for instructions on making a change to your DCSA contributions.

If you should fail to reduce or discontinue your contributions within 30 days of the child's 13th birthday, your contributions will continue to be directed to the DCSA through December 31 and you will forfeit all ineligible contributions.