DCRP - A SMART choice

What is the Dependent Care Reimbursement Plan?
The DCRP is a creative cost-efficient benefit allowing you to pay for certain dependent care costs on a pretax basis. If you, like many of us, are responsible for a dependent’s care, then this is the plan for you. You can redirect part of each paycheck for dependent care expenses you expect to incur in the coming year. Since it’s done on a pretax basis, you’ll never pay taxes on this redirected money. You’ll s-t-r-e-t-c-h your dependent care dollars, getting more bang for your dependent-care buck. SMART, huh?

Pretax benefit? How does that help me?

With the DCRP, you can set aside a portion of each paycheck for dependent care expenses. This amount is deducted from your paycheck before taxes are calculated, so the taxes you owe should decrease. In other words, you won’t pay taxes on money spent for eligible dependent care expenses and your take-home pay may increase, too.

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Who’s eligible to get SMART?
As a city of Houston employee, you are if you:

	Meet the city benefits eligibility requirements.
	Work 30 hours or more per week at the time your dependents are receiving care.

If married, your spouse must be:

	A wage earner;
	Full-time student; or
	Mentally or physically impaired and unable to provide for themselves.

If divorced, you may be eligible to use the plan if you have custody of your children for a longer period of the calendar year than the other parent, and you contribute more than half of the child or children’s support.

		SMART idea! If you are a participant in DCRP for 2006: You must complete a new enrollment form if you want to participate in 2007. Submit your enrollment form to your HR liaison or to Benefits at 611 Walker by December 27, 2007. Dependent care expenses that you incur through December 31, 2007, may be claimed for the 2006 plan year. March 31, 2008 is the last day to file claims for expenses incurred in 2007.

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Who’s an eligible dependent?
Your children under age 13 whom you claim as dependents for tax purposes.

Spouse or dependents of any age who are physically or mentally unable to properly care for themselves and spend more than half the year in your home and whom you claim on your federal income tax return.

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What expenses are reimbursable?

Care outside the home for:

	Licensed nursery school and daycare expenses for children under age 13, including food and education provided as part of preschool care services.
	Expenses for before- or after-school care for a child in kindergarten or a higher grade, but under age 13, may be reimbursable.
	Day camps for qualifying children under 13.
	Licensed daycare for disabled adults who regularly spend at least eight hours a day in your home.
	Individuals providing daycare for eligible dependents, inside or outside the home, must meet all licensing requirements.

Payments to relatives or dependents:
You can count work-related payments you make to relatives who are not your dependents, even if they live in your home. However, do not count any amounts you pay to:

	A dependent for whom you or your spouse can claim an exemption
	Your child who is under 19 at the end of the year, even if he or she is not your dependent;
	Your spouse, or
	Parent of your under age 13 child

Indirect expenses:
Application fees, deposits, etc., may be reimbursed so long as the actual dependent care is the result. A deposit is not reimbursable if the child ends up going to a different day-care center.

		SMART idea! The minimum reimbursement of $15 is waived during the 90-day grace period. So that you can use all of your money that is in your DCRP account, the minimum is waived during the grace period, january - March, for expenses incurred during the previous plan year. You can file a claim for less than $15.

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What’s not reimbursable?

	Spouse or dependent as the care provider. Spouses and other tax dependents will not qualify as a provider of care for reimbursement. In other words, you cannot pay your spouse with pre-tax dollars for watching your children.
	Days when you or your spouse are not working, including sick leave, vacation days or days when you don’t meet eligibility requirements.
	Care provided by your children under age 19 or by anyone you claim as a dependent for federal income tax purposes.
	Food and education expenses for first grade or higher.
	Baby-sitting for social events.
	Overnight camps.
	Private school tuition.
	Education, clothing or entertainment.
	Transportation: The cost of getting an eligible dependent from your home to the care location and back, or from the care location to school and back, if it is not provided by the daycare provider.

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I’m interested. How’s it work?

1. Estimate how much you will spend on dependent care from Jan. 1 to Dec. 31, 2008.
2. Determine how much money you want to contribute to your account for the above period.
3. This amount is deducted in 24 equal amounts from each paycheck BEFORE taxes are calculated.
4. The per-pay-period deduction is credited to your personal reimbursement account.
5. You incur eligible dependent-care expenses during the plan year through December.
6. Throughout the year, submit claims to FLEXONE.
7. FLEXONE processes each claim for reimbursement and will reimburse you via mail or direct deposit.
8. Your FLEXONE reimbursements are limited to the amount of contributions in your account.
9. You have until March 31, 2009 – 90 days after the plan year ends – to file claims incurred during 2007.
10. If you do not incur and claim expenses that equal your full elected amount, the balance in your account is forfeited.
11. At the end of the calendar year, your W-2 will reflect a lower taxable income. That’s when you’ll really feel SMART!

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How much can I put in my DCRP?

Minimum and maximum
If you decide to participate in the DCRP, you may contribute a minimum of $100 to a maximum of $5,000 in your DCRP per year to pay for eligible dependent care expenses incurred from Jan. 1 to Dec. 31, 2008.

During enrollment, you will estimate 2007 qualified dependent care expenses and elect the amount you wish to put into your DCRP. This amount will be deducted from 24 paychecks in equal amounts. The worksheet on the back cover of the guide will help you estimate your eligible expenses.

For example, if you decide to put $2,500 into your DCRP, $104.16 will be deducted from 24 of your paychecks between Jan. 1 and Dec. 31, 2008. A $1,500 annual contribution would be $62.50 from each paycheck.

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How’s the money redirected into my DCRP?

The amount you elect to set aside would be automatically deducted in equal amounts from 24 paychecks over the year.

The minimum you may contribute is $99.84 a year, equivalent to $4.16 from each paycheck.

The maximum annual election is the smallest of:

	$5,000;
	$2,500 if married and filing separate tax returns;
	Your annual taxable pay; or
	Your spouse’s annual taxable pay.

The maximum election from each paycheck is the smallest of:

	Your annual taxable pay divided by 26;*
	Your spouse’s annual taxable pay divided by 24;

Redirected amounts:

	$208.33 ($5,000 divided by 24); or
	$104.16 ($2,500 divided by 24) if married and you and your spouse file separate tax returns.

*Your annual taxable pay is divided by 26 because the city has 26 pay periods. Your spouse’s annual taxable pay is divided by 24 because contributions are taken from 24 of your paychecks each year.

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Where can I see my account balance?

There are several ways that you can see your account balance:

1. Each reimbursement check contains account balance information.
2. A quarterly balance statement will be sent to you if you have not received a reimbursement check within the last 45 days.
3. A balance statement will be sent to you prior to the end of the plan year, and 90 days after the end of the plan year.
4. You may access reimbursement information via a toll-free number, (800) 323-5391 or via the interactive voice response system, (877) 353-9487.

		Direct deposit - sounds like a SMART idea! Direct deposit is a simple, convenient and safe way to automatically deposit your reimbursements into your bank account. With each deposit, you’ll receive a Deposit Notice which will contain the same information that comes on a check. To enroll in direct deposit, just complete the Direct Deposit Authorization Form and return it to the FLEXONE department. Be sure to include one of your voided checks or a savings deposit slip. After they receive your authorization agreement, FLEXONE will verify all information with a pre-notification to your financial institution. Direct deposit will begin 10 calendar days following the pre-note.

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Why DCRP’s a SMART choice for some employees:

In the example below, let’s say you earn $45,000 per year and decide to put $5,000 into the DCRP to pay for dependent care you expect to incur in the next 12 months. You can save $750 by lowering your taxable income, and paying less tax.

Without the DCRP, you pay taxes on every dollar you earn, and then you pay for dependent care expenses. With DCRP, you can set aside a portion of each paycheck before taxes are calculated, so the taxes you owe should decrease. In other words, you won’t pay taxes on the money you spend on qualified dependent care expenses through this plan. Notice the difference in your take-home pay.

* Married, filing jointly in 2007: This example is for illustration only and assumes a combined tax rate (income, FICA, Medicare) of 25%. Your own personal tax situation may differ. Check with your tax advisor to see how much the DCRP will benefit you.

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SMART people know there are rules and regulations.
The Internal Revenue Service Code Section 125 spells out the regulations. In exchange for the favorable tax treatment of the DCRP, the IRS has a few rules to follow.

Reimbursement of eligible expenses: You may incur expenses and request reimbursement from your DCRP as early as January 1, 2008. Your reimbursement is limited to your contributions to your account.
For example, you elect to contribute $2,400 for the year and biweekly deductions of $100 begin January 1. For the first two weeks in January, you incur an expense of $100 for your dependent’s day care. Because you have also had a deduction of $100, you will be reimbursed the entire expense of $100. Each two-week period thereafter, you can file a claim for $100 and be reimbursed the total amount.

Changing your election: After the annual enrollment, you can only change your DCRP election during the plan year (Jan. 1 – Dec. 1) if you have a change in family status. Events such as marriage, divorce, death, or birth of a child would allow you to increase or decrease your annual contribution. The change must be consistent with the change in family status.

For example: You elect $2,500 for the year, but you have a baby who starts going to daycare in July. You may increase your contribution up to the 5,000 annual maximum. Your bi-weekly contribution will change from $104.16 to $308.33 for the remainder of the year, through Dec. 31.

Family status changes include:

1. Marriage or divorce,
2. Gaining or losing a dependent,
3. Termination or commencement of your spouse’s employment, or,
4. A change in job status from full-time to part-time or vice versa for you or your spouse.
5. A child turning 13 is not a change in family status.

Use it or lose it explanation: It is very important that you carefully calculate the amount you contribute to the DCRP. Here’s why: if money is remaining in your DCRP account at the end of the plan year, Dec. 31 and unclaimed through the 90 day claim period that ends Mar. 31, it will not be returned to you. You will forfeit the balance.

You will forfeit the account balance. Your balance will not roll-over to the next year. Because of the use-it-or-lose-it rule, it is very important for you to carefully estimate your out-of-pocket dependent-care costs for the upcoming 12-month period.

While the plan year ends Dec. 31, 2008, you will have until Mar. 31, 2009 to file claims for any expense you incurred between Jan. 1, 2008 and Dec. 31, 2008.

Don’t let these rules scare you away from this important benefit – especially if you know you or your family will have dependent-care expenses in the next 12 months. Don’t let the federal government take more than its fair share of your hard-earned dollars!

		SMART idea! Reminders Dependent care services must be received during the plan year, Jan. - Dec. When figuring your cost for the year, be sure to consider days not worked, such as holidays. Payments you make for dependent care must be made to someone that you could not claim as a dependent. The dependent care reimbursement will only be paid up to the amount you have in your account. If your claim exceeds your account balance, the balance of the claim will be paid to you as additional contributions are made to your account.

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DCRP or childcare tax credit - which is better for me?

Under IRS regulations, you may be eligible to receive a federal tax credit for your dependent care costs. This credit is a percentage of the amount of work-related child and dependent care expenses you paid to a care provider. It can be as great as 35 percent of your qualifying expenses, depending upon your income. However, you cannot claim the tax credit for any dependent care expenses paid from the city-sponsored DCRP. Also, if you participate in the DCRP, the dollar amount of your expenses eligible for the federal tax credit will be reduced. The reduction is equal to the amount you contribute to the plan.

The DCRP tends to be more valuable than the tax credit if your family’s taxable income is over $25,000. To help you determine whether the DCRP or the IRS tax credit works better for your particular situation, refer to IRS Publication 503 at www.irs.gov/pub/irs-pdf/p503.pdf. To see IRS-approved eligible expenses, see pages 2-7. To request a 503 publication, call (800) 829-3676. Allow 10 business days for delivery.

You may be required to show the taxpayer ID or Social Security number of dependent care providers on your federal tax return.

For additional IRS information, call (800) 829-1040 or visit www.irs.gov/individuals/index.html. A DCRP worksheet is also in the back of this guide to assist you in making your decision.

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It’s easy to file a claim!

It’s as easy as sending a fax. To file a claim for reimbursement, obtain the AFLAC Benefits Claim form from: www.aflac.com/us/en/benefits/flexone.aspx and complete it. Provide the required documentation (receipts) for your eligible dependent care expense.

Receipts from your dependent care provider must show:

• The name of the provider
• A description of the service
• Charge(s) for the service
• The date(s) of service

Most official receipts will work. Send your completed form and receipts to: FLEXONE, 1932 Wynnton Road, Columbus, Georgia 31999-9950 or fax it to: (877) 353-9256.

Claims are paid weekly, on Tuesdays. You can expect to receive your reimbursement check within 10 days of the Tuesday processing schedule. Most claims are paid and mailed within 7 days. You can receive faster payments when you sign up for direct deposit.

		Checklist to expedite your claim Use the Benefit Services Claim form: www.aflac.com/us/en/benefits/flexone.aspx Include receipts Your receipt should show: dependent(s) name dates of service provider of service provider’s Tax ID Number dollar amount claimed signature of provider Be sure to sign the form For more information visit: www.aflac.com/us/en/benefits/flexone.aspx