I have a participant in our Cafeteria Plan whose husband is self-employed and works out of their home. They still take their daughter to a full-time day care operation. Can the participant run the day care costs through our cafeteria plan?

No. Because the husband works out of the home, the child-care option is not available.

Yes, since the child is sent to a organized child-care facility the employee should be able to run the costs through the plan.

Treasury Regs. Section 1.44A-1© states that employment-related expenses must be incurred while the employee or spouse is either *gainfully employed or in an active search to become gainfully employed.* Self-employment is still, very much, gainful employment, and I don’t really think the location of the spouses place of business is particularly relevant. If the employee had not been completely honest and up-front with you, not revealing the location of her husbands place of business, would you have any other doubts about eligibility? If the answer to that question is no, then I don’t think you have any real concerns. But it’s always nice to get feed-back from others on the out-of-the-ordinary situations.

As a self-employed person who works out of her house, I will tell you that I am able to claim the child care tax credit for my child care. If I can claim the tax credit then your employee can run the expenses through the plan. I have never heard that just because someone happens to be working out of the house, that that disqualifies them from getting either the tax credit or using the FSA.

If anything, when you work out of the house, your need to get the kids out of the house increases, not decreases.