Dependent Care FSAs help employees pay eligible care expenses with pre-tax dollars, making it easier to manage the cost of care while working. Nondiscrimination testing ensures these benefits are offered and delivered fairly, but employers have long had to navigate complex nondiscrimination rules to do so. Many have found the prior testing approach difficult to pass and difficult to administer.
New proposed federal regulations1 offer welcome clarity. The guidance addresses dependent care assistance programs (DCAPs)—the broader tax category that includes Dependent Care FSAs—alongside rules for employer contributions to new Trump Accounts. Although the two topics appear together in the guidance, the DCAP provisions stand on their own and provide a more detailed framework for testing dependent care benefits, including DC FSAs.