Dependent Care vs. Health Coverage for Dependents
"Dependent Care" and "Health Coverage for Dependents" are two terms that are often confused and have different meanings for payroll tax reporting. Both items can be covered under an employer's Section 125 plan.
Dependent Health Coverage: If an employee adds health coverage for their spouse and/or children, the premiums are considered pre-tax deductions assuming an employer has a standard Section 125 POP plan set up. ASAP can itemize the premium amounts as a separate deduction line if this assists the employee/employer.
Dependent Care is a subset of the same IRS Section 125 tax area, but it commonly applies to caretakers, such as daycare centers or elder care, for working heads of household who must pay for someone to care for their dependent(s). Employer-sponsored dependent care deductions must be itemized separately from other employee deductions; this allows ASAP to accurately report the amount as required in box 10 on the employee's W2 and to monitor the annual amount so it does not exceed the IRS limit for the calendar year.