Why is Back-Up Care taxable now?
Because Back-Up Care is provided at a cost less than the market rate for these services, the difference between the market rate and the benefit user’s cost is treated by the IRS as additional income for employees and nonqualified scholarship students that are a NRA.
Up to now, because the U.S. President had enacted a federal state of emergency due to the COVID Pandemic, the Stafford Act enabled the Back-Up Care Program to be treated as non-taxable, as it qualified as disaster relief during this period.
However, the federal state of emergency and the Stafford Act ended on May 11, 2023; therefore, the employee or NRA student who uses the Back-Up Care Program will be required to pay taxes on the fringe benefit corresponding to the care used.
How are students affected?
For students using the program, UCSF is not required to withhold taxes or report the amount to the IRS. UCSF will provide a year-end statement of the benefit to the student.
What are the Bright Horizons Back-Up Care Program tax implications?
This program provides UCSF Faculty, Residents and Clinical Fellows ("benefit users") with in-home and center-based dependent care at a cost that is less than the market rate for these services. The IRS considers the difference between the Fair Market Value (FMV) and the benefit user’s cost as additional income and is subject to taxation.
Starting May 12, 2023, employees who use the program are required to pay taxes on the fringe benefit corresponding to the care they use. Imputed income will be reflected two months following the service usage. For example, if care is secured in October, imputed income will be reflected in December’s pay statement to the employee.
Fair Market Values
The FMVs below are effective January 1, 2026 and apply to care used on or after January 1, 2026.
- Center-Based Child Care/In-Person Camp/Virtual Camp: $122 per day per child
- In-Home Child Care: $23.50 per hour; 4-hour minimum per day
- In-Home Adult Care: $32.80 per hour; 4-hour minimum per day
Mildly Ill Care: $34.10 per hour; 4-hour minimum per day
Note: Although the in-home care/mildly ill care FMVs are hourly rates, 10 or fewer hours of care – charged by the hour – on a given day count as one full back-up care day against your back-up care allotment for the academic year. For example, while a 4-hour in-home care day's total FMV is lower than that of an 8-hour day, each day is still considered one full back-up care day. There are no fractional back-up care days in your allotment.
- Mildly Ill Care: $34.10 per hour; 4-hour minimum per day
- Tutoring: $122 per 4 hours/per tutoring recipient. Four hours of tutoring count as one full back-up care day in your allotment for the academic year.
- Out-of-Network Care Reimbursement: $100 per day. Each reimbursement counts as one full back-up care day in your allotment for the academic year.
How is imputed income calculated?
The following examples illustrate how the imputed income is calculated for a UCSF benefit user.
One day of center-based child care
o UCSF FMV cost of care = $122 per day per child
o Benefit user co-pay for one child = $30 per day
o The imputed income = $92 for the day ($122 - $30 = $92)
One day of in-home child care
o UCSF FMV cost of care = $23.50 per hour
o Benefit user co-pay = $10/hr. If 8 hours of in-home care are used on a given day, the total co-pay for the day would be $80 ($10 x 8 hrs. = $80)
o The imputed income for an 8-hour day = $108 [($23.50 x 8 hrs.) - $80 = $108].
How is imputed income taxed and deducted?
The imputed income is reported to the IRS as Other Income and is subject to the following taxes (deducted from the employee’s paycheck under the FMV earn code):
- Federal income tax
- State income tax
- OASDI: 6.2% with $160,200 income limit
- Medicare: 1.45%
When are taxes deducted for imputed income?
Taxes will be deducted 2 months after the service was utilized for employees.
Learn about the tax implications of Back-Up Care Usage. See the Fair Market Values for 2026.
