With this feature, employees can contribute pretax dollars into an account that can ultimately reduce out-of-pocket costs for dependent care expenses.
Standard transaction types for Dependent Care Spending Account deductions have a pre-tax deduction code of 125DC Reg. This means that the transaction type will deduct from the employee's pay pre-tax for taxes other than most State Unemployment Insurance [SUI] and State SUI Assessment taxes. However, it will only do so for the first $5,000.00 deducted. At that time, the deduction will stop for the employee. There will be no after-tax contributions.
This new transaction type will need to have its pre-tax deduction code set 125DC Reg. This code is applied in Admin Tools > Transaction Type > Detail tab.
Create a Dependent Care Spending Account Transaction Type
You will need to create a new transaction type to account for the FSA deductions that need to be taken pre-tax. To create this new transaction type:
1. Open Admin Tools > Transaction Type > Detail.
2. Click Add New.
3. Name this transaction type "Dependent Care" or something that will prompt your users to understand it is for Dependent Care Spending Account contributions.
4. Set the Type field to Permanent.
5. Set the Deduction Category to OtherHealthInsurance.
6. The Pre-Tax Deduction code must be 125DC Reg. This is the most important step!
7. Select all the branches with which this deduction should be shared.
8. Click Save.
With the employee's deduction set as outlined above, the Dependent Care deduction will calculate on a pretax basis up to $5,000.00 annual limit for 2020. Once that value is met, the Dependent Care deduction will stop.