Box 10 Dependent Care Benefits

[WICPA]

I have a client that brought in a W-2 with almost $10,000 listed in box ten of her W-2. Her employer is a Daycare Provider and she receives a discount for her own children while she works. I looked at her childcare statement and the discount is listed on her statement as the same amount that's on her W-2. I looked at a pay stub and she is paying her portion of the childcare with after tax dollars.

I have a problem with this. First, I'm not sure the discount should be taxable to her as I'm not sure there are substantial additional costs to the Daycare, and even if the discount is taxable it should be in box 1,3 and 5 subject to Fica and Medicare and then there would also have been withholding subtracted.

Anyone else ever dealt with this?

Thanks

[Rapid Robert]

Unless you have high faith in the competency of the person who prepared the W2, it would appear there is a problem.

Hard to tell if it's incorrect just based on what's been provided here.

First of all, some of the concern about what is taxable and what is included in Box 1 is addressed in the form instructions. How do you know that some of what is in Box 10 isn't also in Box 1, therefore "after tax dollars"?

Is there a dependent care reimbursement (Sec 125)? That could be as much as $5K. It's not always easy to tell from the pay stub exactly how items map to the W-2.

In light of the instructions below, is there still something that seems questionable? I haven't checked Pub 15-B but there is probably more info there.

"Show the
total dependent care benefits under a dependent care
assistance program (section 129) paid or incurred by you
for your employee. Include the fair market value (FMV) of
care in a daycare facility provided or sponsored by you for
your employee and amounts paid or incurred for
dependent care assistance in a section 125 (cafeteria)
plan. Report all amounts paid or incurred (regardless of
any employee forfeitures), including those in excess of the
$5,000 exclusion. This may include (a) the FMV of
benefits provided in kind by the employer, (b) an amount
paid directly to a daycare facility by the employer or
reimbursed to the employee to subsidize the benefit, or (c)
benefits from the pre-tax contributions made by the
employee under a section 125 dependent care flexible
spending account. Include any amounts over $5,000 in
boxes 1, 3, and 5. For more information, see Pub. 15-B."