Carried-Over Dependent Care Funds Won't Be Taxed, IRS Says

People won't be taxed on employer-sponsored dependent care funds that they didn't get to use because of the coronavirus pandemic and that they carry over into 2021 and 2022, the Internal Revenue Service said Monday.

Funds from employer-sponsored dependent care assistance programs not used in 2020 and 2021 and carried over into later plan years will not be taxed, the IRS said in a notice. The Taxpayer Certainty and Disaster Tax Relief Act, which passed in December as part of the Consolidated Appropriations Act of 2021 , allowed employers to change their programs so that people could transfer unused funds to plan years that end in 2021 or 2022, according to the agency.

Dependent care assistance funds that wouldn't have been included in income for 2020 will not be included in income for 2021 or 2022, the IRS said in its notice. Such programs normally do not allow employees to carry over unused dependent care funds, according to the agency.

--Editing by Robert Rudinger.

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