The IRS will update the 2021 Form W-2 instructions to reflect changes to the dependent care credit made by the American Rescue Plan Act (ARP Act, ARPA; PL 117-2). ARPA increased the maximum amount of dependent care benefits that can be excluded from an employee’s income from $5,000 to $10,500 for most taxpayers.
Updates to 2021 Form W-2 instructions. The IRS will update the 2021 Forms W-2 instructions for Box 10, Dependent care benefits, by removing the $5,000 limit from the “Instructions for Employees” section. This section will also be updated to state that any amount above the employer’s plan limit is also included in Box 1 of Form W-2.
In addition, the specific instructions for the 2021 Form W-2 Box 10, Dependent care benefits, will be updated to remove the $5,000 limit and to remind employers of the increased exclusion amount ($10,500 or $5,250 for separate filers).
Employers are permitted to increase the maximum amount of dependent care assistance benefits that can be excluded from an employee’s income from $5,000 to $10,500 ($5,250 for Married filing separately). However, the employer must timely amend its plan for the increase to take effect.
For more information about the taxability of dependent care benefits, see IRS clarifies extensions and carryovers for dependent care assistance programs (05/11/2021).
The IRS says the updated instructions will be available here after they are posted in November 2021.
To continue your research on the annual limit on the amount of the exclusion for dependent care assistance benefits, see FTC 2d/FIN ¶H-1402.
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