Many organizations are looking for new and creative ways, besides traditional benefits, to meet their staffs’ needs. A good benefit plan for employees is the dependent care flexible spending account (DCFSA). It helps with dependent care expenses and attracts a diverse workforce while reducing financial burden.
For many years, one of the biggest costs for families has been child care. Families are using both household income and savings to cover that expenditure, according to the Care.com 2024 Cost of Care Report.
Brad Wilson, CEO of Care.com, said, “Parents are being forced into a financial hole that is nearly impossible to climb out of within the first five years of their child’s life.”
Familiarity with DCFSAs can improve your benefits package and help your employees be healthier and more productive.
What is a dependent care flexible spending account?
A DCFSA allows employees to allocate a portion of their pretax earnings to cover specific dependent care expenses. These costs usually relate to taking care of dependent children under the age of 13 or other dependents who are unable to take care of themselves. A DCFSA can be offered alongside the standard medical FSA or as a standalone enhancement to help cover the eligible child or adult care expenses that are not covered or reimbursed by your other pretax accounts.
Limits and regulations
DCFSA contribution limits are governed by federal standards, which guarantee equality for all. See our contribution limits page for details. To comply with IRS limits, FSA contributions cannot exceed an individual’s earned income or the earned income of their spouse, whichever is smaller.
Eligible expenses
Employees’ DCFSA eligible expenses must be deemed essential for enabling them to work, looking for work, or attending education full-time in order for them to be eligible for reimbursement. A broad range of care services, such as child or adult daycare, nursery school, day camps, in-home care, registration fees and more, are covered under the DCFSA eligible expenses.
Adult dependent care expenses
DCFSA eligibility also extends to cover relevant care expenses for persons unable to take care of themselves, such as elderly parents or disabled family members. “A spouse or dependent who is physically or mentally incapable of self-care and for whom you can claim an exemption” is the definition of a qualified person.
There are two essential elements here:
- The person lacks the mental or physical capacity to take care of themself.
- The person qualifies as a tax dependent.
Furthermore, eligible expenses for adult care may differ slightly. These costs for adult dependent care are often not things but the various locations or spaces where care is given. Employees should be aware that expenses must meet three requirements to be approved:
- Provide care to an eligible/qualified person
- Allow the individual to have earned income during the year
- Enable the individual to work or look for work
It can be challenging to find information on adult dependent care expenses. However, the Department of the Treasury offers an entire guide.
The importance of receipts
Effective DCFSA management requires careful receipt submission and proper documentation. Accurate record-keeping is essential for simplifying both regulatory compliance and reimbursement processes. Encouraging employees to turn in receipts on time guarantees efficient claim processing and reduces the possibility of problems.
Employer benefits
Employers could benefit from including DCFSA in their benefits package in a number of ways.
- Happier employees: providing financial help for dependent care shows commitment to their well-being and balancing work and life.
- Tax savings: Pretax contributions to the DCFSA can result in tax savings for both employers and employees.
- Hiring and keeping employees: Offering benefits like DCFSA can improve your company’s reputation, attract skilled workers, and increase employee commitment.
- Better work performance: employees do better when they have reliable childcare to help them focus on their job responsibilities.
Expanding the benefits of DCFSA
DCFSA can help your employees and organization by creating a positive work environment. This plan type offers advantages and supports a thriving workplace.
Employee financial wellness
Taking care of dependents can be expensive and stressful for employees, affecting their health and job performance. Offering DCFSA options helps employees manage costs, reduce stress, and improve financial well-being. It allows them to take control of their finances.
Employees can use DCFSAs to increase their take-home pay. They can also support their loved ones by putting pretax money towards dependent care.
Flexibility and choice
A DCFSA gives employees the freedom and option to choose care solutions that best fit their individual needs. Employees can customize their benefits using DCFSAs to suit their individual needs. This can include options for childcare, caregiver assistance, and programs for adult dependents. This adaptability raises employee happiness and engagement as well as promotes an inclusive and empowered culture within the company.
Workforce diversity and inclusion
To advance inclusion in the workforce, effective support for dependent care requirements is crucial. By offering a wide range of DCFSA options, you demonstrate your commitment to addressing your employees’ diverse caregiving requirements. This brings in more skilled workers and fosters a culture of respect and inclusivity.
Competitive advantage
Organizations need to set themselves apart in today’s competitive job market by providing attractive benefit packages.
Focusing on the well-being and financial stability of your employees and their families is important. This can help you attract top talent and retain key staff members in the long term. Taking care of your employees and their families can lead to a more successful and stable workforce. This can ultimately benefit your company in the long run.
Maximizing employee well-being and organizational success
Organizations create the foundation for long-term success and expansion in the cutthroat business world by putting an emphasis on employee well-being and providing competitive benefit packages. Enable your staff to confidently handle dependent care costs by cultivating a supportive and appreciative culture within your company.
Including DCFSAs in your benefits package is a thoughtful choice that will pay off in years to come for employers and employees.
Learn more about incorporating DCFSAs into your organization today.
The material in this blog is presented for informational purposes only and such information is believed to be accurate as of the publication date; however, it is subject to change.
Benefit Resource, LLC is an affiliate of Inspira Financial Health, Inc. and Inspira Financial Trust LLC. Benefit Resource, LLC and its affiliates do not provide legal, tax or financial advice. Please contact a professional for advice on eligibility, tax treatment and other restrictions.
