Source: https://www.govinfo.gov/content/pkg/USCODE-2024-title26/pdf/USCODE-2024-title26-subtitleA-chap1-subchapB-partIII-sec129.pdf#page=1
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Page 595

TITLE 26—INTERNAL REVENUE CODE

income, loss, deduction, or credit taken into account
prior to Nov. 5, 1990, for purposes of determining liability for tax for periods ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101–508, set out as a note under
section 45K of this title.

§ 129. Dependent care assistance programs
(a) Exclusion
(1) In general
Gross income of an employee does not include amounts paid or incurred by the employer for dependent care assistance provided
to such employee if the assistance is furnished
pursuant to a program which is described in
subsection (d).
(2) Limitation of exclusion
(A) In general
The amount which may be excluded under
paragraph (1) for dependent care assistance
with respect to dependent care services provided during a taxable year shall not exceed
$5,000 ($2,500 in the case of a separate return
by a married individual).
(B) Year of inclusion
The amount of any excess under subparagraph (A) shall be included in gross income
in the taxable year in which the dependent
care services were provided (even if payment
of dependent care assistance for such services occurs in a subsequent taxable year).
(C) Marital status
For purposes of this paragraph, marital
status shall be determined under the rules of
paragraphs (3) and (4) of section 21(e).
(D) Special rule for 2021
In the case of any taxable year beginning
after December 31, 2020, and before January
1, 2022, subparagraph (A) shall be applied by
substituting ‘‘$10,500 (half such dollar
amount’’ for ‘‘$5,000 ($2,500’’.
(b) Earned income limitation
(1) In general
The amount excluded from the income of an
employee under subsection (a) for any taxable
year shall not exceed—
(A) in the case of an employee who is not
married at the close of such taxable year,
the earned income of such employee for such
taxable year, or
(B) in the case of an employee who is married at the close of such taxable year, the
lesser of—
(i) the earned income of such employee
for such taxable year, or
(ii) the earned income of the spouse of
such employee for such taxable year.
(2) Special rule for certain spouses
For purposes of paragraph (1), the provisions
of section 21(d)(2) shall apply in determining
the earned income of a spouse who is a student
or incapable of caring for himself.
(c) Payments to related individuals
No amount paid or incurred during the taxable
year of an employee by an employer in providing
dependent care assistance to such employee

§ 129

shall be excluded under subsection (a) if such
amount was paid or incurred to an individual—
(1) with respect to whom, for such taxable
year, a deduction is allowable under section
151(c) (relating to personal exemptions for dependents) to such employee or the spouse of
such employee, or
(2) who is a child of such employee (within
the meaning of section 152(f)(1)) under the age
of 19 at the close of such taxable year.
(d) Dependent care assistance program
(1) In general
For purposes of this section a dependent
care assistance program is a separate written
plan of an employer for the exclusive benefit
of his employees to provide such employees
with dependent care assistance which meets
the requirements of paragraphs (2) through (8)
of this subsection. If any plan would qualify as
a dependent care assistance program but for a
failure to meet the requirements of this subsection, then, notwithstanding such failure,
such plan shall be treated as a dependent care
assistance program in the case of employees
who are not highly compensated employees.
(2) Discrimination
The contributions or benefits provided under
the plan shall not discriminate in favor of employees who are highly compensated employees (within the meaning of section 414(q)) or
their dependents.
(3) Eligibility
The program shall benefit employees who
qualify under a classification set up by the
employer and found by the Secretary not to be
discriminatory in favor of employees described
in paragraph (2), or their dependents.
(4) Principal shareholders or owners
Not more than 25 percent of the amounts
paid or incurred by the employer for dependent care assistance during the year may be
provided for the class of individuals who are
shareholders or owners (or their spouses or dependents), each of whom (on any day of the
year) owns more than 5 percent of the stock or
of the capital or profits interest in the employer.
(5) No funding required
A program referred to in paragraph (1) is not
required to be funded.
(6) Notification of eligible employees
Reasonable notification of the availability
and terms of the program shall be provided to
eligible employees.
(7) Statement of expenses
The plan shall furnish to an employee, on or
before January 31, a written statement showing the amounts paid or expenses incurred by
the employer in providing dependent care assistance to such employee during the previous
calendar year.
(8) Benefits
(A) In general
A plan meets the requirements of this
paragraph if the average benefits provided to

