Dependent Care FSAs: How they can support your employees

Working parents have been challenged with safety and health concerns and balancing work and providing care for children whose schools or daycares were closed for extended periods.  

Now that most schools and daycares have resumed in-person education, it might be time to reevaluate benefit options to support employees with dependents. One solution is to offer employees the opportunity to opt into a dependent care flexible spending account, or DC-FSA.

A DC-FSA covers qualified daycare expenses for children younger than age 13 and adult dependents who are incapable of caring for themselves and is a great tool for budgeting daycare expenses.

Employees don’t pay federal or FICA taxes on the money they put in their accounts, and many state taxes are also exempt. Like a healthcare flexible spending account, with a DC-FSA, pre-tax funds are deducted from each paycheck and automatically deposited into the employee’s account. These important savings attributes help make childcare more affordable for working parents.

Child and dependent care are critical issues and large expenses for many employees who rely on care options to be able to work. According to a May 2021 survey conducted by YouGov, on behalf of Bankrate, families across the U.S. spend on average $8,355 a year on childcare for each child. But childcare can vary dramatically by location and quality and can cost much more than that. For example, according to the Economic Policy Institute, in Wisconsin, where HSA Bank is headquartered, the average annual cost of infant care is $12,567 a year, which is 48.3% more per year than the average in-state tuition for four-year Wisconsin public college.

With the tight labor market, DC-FSAs are an excellent attraction and retention tool for employers to explore. Augmenting employee benefits packages with a DC-FSA option sends a strong message to employees with dependents that their employer cares about their work-life balance.

Adding a DC-FSA option to a suite of benefits offerings for employees is also straightforward. There are no health plan deductible or out-of-pocket requirements for a DC-FSA, which can be offered without any health plan associated with it. Employees who opt-in select the amount of their contribution up to the IRS limit.

In 2021 as part of the American Rescue Plan, the DC-FSA limit was temporarily increased to $10,500 from $5,000 for single parents and married couples who file taxes jointly. While businesses aren’t required to adopt this higher limit, many are allowing employees to make the change.

Unlike a healthcare FSA, the total election amount of the DC-FSA is not available on January 1st. Employees can only be reimbursed for expenses equal to the amount of money they have already contributed to their DC-FSA via payroll deduction. When an employee incurs qualified expenses, they can submit claims to be reimbursed from the DC-FSA.

Now is the time to consider if adding a DC-FSA to your employee benefits offerings makes sense for your workforce. DC-FSAs can help employees plan and pay for the dependent care needed to be able to work and earn a living and can be a powerful talent attraction and retention tool for employers. Learn more here.

Kevin Robertson, CRO, HSA Bank 

Share this post:

Comments on "Dependent Care FSAs: How they can support your employees"

Comments 0-5 of 0

Please login to comment