Situation:

1. Calendar Plan Year (Jan thru Dec)
2. School Year (Sept thru June)

Newly eligible ee has already, before becomming eligible, paid for day care up front for an entire school year (school not associated with day care center). How should we handle a dependent care election in this case. Is the amount not eligible at all because it is already paid or can it be eligible because it is not yet incurred? What about the monies for next plan year already spent? Just elect what's for this year and then plan on the rest for next year?

An employee can be repaid from a cafeteria plan for dependent care expenses which have been paid by the employee before enrollment if the expenses are incurred (i.e., the care is provided) after enrollment. (Prop. Treas Reg. Sections 1.125-6(a)(4)(i): " . . . dependent care expenses may not be reimbursed before the exopenses are incurred. . . . dependent care expenses are incurred when the care is provided and not when the employee is formally billed, charged for, or pays for the dependent care.")