Every day, on my way to work, I drop off my 2-year-old at a day-care center. The cost is $135 a week. In January 2012, my employer notified all the employees of a reimbursement of up to $6,000 per year for day-care expenses according to a new plan. This applies to employees who have been with the company for at least three years at the beginning of the year for which the payment is to be made. I have been with the company for six years, so I got the full $6,000. It's like getting a great raise in pay. I am working full time, and my husband is going to nursing school full time. Just where do we stand with the tax man on the $6,000 and the excess of almost $1,000 that's out of our pockets?
WHAT HARRY SAYS: There is an exclusion of up to $5,000, or the lesser of the income of two spouses. Since your spouse is not earning any funds, but does qualify as a full-time student, the exclusion limit on your reimbursement is $250 a month ($3,000 a year). The excess is deemed to be taxable income. A credit is available (on a graduated scale) for amounts that do not exceed $3,000 for one child or $6,000 for more than one reduced by any employer reimbursement. So you don't qualify for the credit. Anyway, a tip of the many Gross hats to your enlightened employer.