A town has a cafeteria plan (section 125 plan), which offers dependent care assistance. The benefits received by an employee exceed $5,000. How is this benefit reported on Form W-2?

An employee can generally exclude from gross income up to $5,000 of benefits received under a dependent care assistance program each year. The limit is reduced to $2,500 for married employees filing separate returns. The exclusion cannot be more than the earned income of either the employee or the employee’s spouse. The total dependent care benefits the employer paid to the employee or incurred on the employee’s behalf (including amounts from a section 125 plan) should be reported in Box 10 of Form W-2. Any amount over $5,000 should be included in Boxes 1, 3, and 5, as “wages,” “Social Security wages” and “Medicare wages.” See Guide to business expense resources or Publication 15-A, Employer's Supplemental Tax Guide (Supplement to Circular E, Employer's Tax Guide, Publication 15 PDF for additional information.