Chevron just sent an e-mail to all participants of the Dependent Care Spending Account (DCSA) the the plan was not qualified by the IRS for 2015, presumably because too many highly compensated employees participated. The issue is that now the pre-tax deductions for last year are suddenly taxable. Nice !
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Here is the e-mail:
The DCSA Plan can help you reduce your taxable income and is therefore subject to the requirements of Internal Revenue Code Section 125 and Section 129. In order to maintain its tax-favored status, the Plan must pass a series of nondiscrimination tests at the end of each year. These tests are designed to ensure that tax-favored benefit plans – like the DCSA – do not discriminate in favor of highly compensated employees. (The IRS determines the definition of a Highly Compensated Employee each year.) The DCSA Plan is offered to eligible employees at all compensation levels. Unfortunately, the DCSA Plan did not pass the 2015 nondiscrimination testing. As a result, your 2015 DCSA contributions are taxable.
Here is the IRS section: https://www.irs.gov/publications/p15b/ar02.html#en_US_2016_publink1000193662
Exception for highly compensated employees. You can't exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program don't favor highly compensated employees and the program meets the requirements described in section 129(d) of the Internal Revenue Code.
For this exclusion, a highly compensated employee for 2016 is an employee who meets either of the following tests.
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The employee was a 5% owner at any time during the year or the preceding year.
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The employee received more than $120,000 in pay for the preceding year.
You can choose to ignore test (2) if the employee wasn't also in the top 20% of employees when ranked by pay for the preceding year.
ok, so I made a little over $120k, however, I do not feel I am a highly compensated employeewhen it comes to D&C, especially not compared to the other folks in my PSG. I am certainly not in the top 20% of employees for 2015.
I also got an email indicating I would receive a corrected w2.
The OP specifically may have been identified as a HCE and had his/her benefits reduced or eliminated. Non-HCEs would still get the full $5k benefit.
Are you sure that's a real, legitimate email? Did it ask you to click on any links or to enter any account numbers? I've participated in the dependent care plan for years and received no such email. Sounds suspicious.