Hello again MrJames,
First, you do not need to have these payments administered under a 125 plan, although that is certainly an option if you choose to do so.
However, if you choose to just directly provide the employee with dependent care assistance, then you may make the payments either directly to the care provider or to the employee - that is your choice. However, as stated above, the amount which can be excluded from taxable wages cannot exceed $5,000 annually.
In addition, you asked about referencing the amount on the employee's paystub. While you would not have to do that, you would have to report the amount paid to the employee or to the care provider on the employee's W-2 form. The amount which is non-taxable (up to $5,000) is reported in Box 10 of the employee's W-2 form. Any amounts which exceed the $5,000 limit are reported in boxes 1, 3 and 5 as taxable wages. Any employee who has amounts reported in box 10 of his W-2 form must then fill out Form 2441 for Child and Dependent Care Expenses, and would report receiving this assistance. This is to assure that the employee does not receive in effect a double deduction for such expenses.
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