The notice clarifies that if these dependent care benefits would have been excluded from income if used during the taxable year ending in 2020 (or 2021, if applicable), these benefits will remain excludible from gross income and are not wages of the taxpayer for the taxable years ending in 2021 and 2022.

In addition, the notice clarifies that these amounts will not be taken into account for purposes of the application of the limits under § 129 to the other dependent care benefits made available for the taxable years ending in 2021 and 2022.

This is a change from how the § 129 exclusion has been applied to grace period amounts in years prior to the CAA; in those years (and as a continuing general rule), reimbursements of dependent care benefits in excess of the $5,000 statutory amount attributable to a grace period were taxable to recipients

Notice 2021-26, will be published in Internal Revenue Bulletin 2021-21, on May 24, 2021.