Highlights
- By offering a Dependent Care Flexible Spending Account (FSA), you can support employees as they balance work and caregiving.
- Employees can use pre-tax dollars for eligible expenses, reducing their taxable income and lowering your company’s payroll tax burden.
- Employers Resource provides cost-effective benefits solutions, while handling all the administrative details. Speak with an expert to discover how we can help.
Work responsibilities are just one part of the equation. Many employees are also caregivers, balancing professional demands with the needs of their children, spouses, or elderly parents. What if you could offer a tangible way to lighten that load for them and show them you understand their real-life challenges?
A Dependent Care Flexible Spending Account (DCFSA) can be a proactive step, providing financial relief and peace of mind to your employees. Here’s everything you need to know.
What Is Dependent Care FSA?
A Dependent Care Flexible Spending Account allows employees to use pretax dollars to pay for eligible dependent care expenses not covered by insurance. This includes child or adult care, nursery school, preschool, before or after school programs, and more.
Offered as part of your employee benefits, it’s a practical way to support employees’ work-life balance and can be a powerful strategy to attract and retain talent. A Dependent Care FSA will help lessen the financial burden on your employees, making them happier and possibly more engaged with their work. Your employees will be less stressed and feel greater loyalty toward your company.
How Does Dependent Care FSA Work?
During your company’s open enrollment period, you can offer employees the opportunity to contribute to a Dependent Care FSA. This program allows them to set aside a specific amount that will be deducted from their paycheck on a pre-tax basis. This not only benefits your employees but also lowers your company’s payroll tax liabilities.
Employees can use the funds in their FSA to pay for eligible dependent care expenses. To access the funds, they need to submit valid claims with supporting documentation, so you can reimburse them from their FSA accounts.
To process reimbursements, employees must complete a claim form and include supporting documentation such as receipts or proof of payment. The receipts must contain this specific information:
- Date of expense,
- Amount of expense,
- Full name, address, and social security number or tax identification of the person providing care.
To ensure compliance and eligibility, you need to verify that the dependent meets specific criteria, such as being a child under the age of 13 or a spouse or dependent who is physically or mentally incapable of self-care.
Contribution Limits
The IRS sets annual contribution limits for Dependent Care FSAs, so it’s essential to be aware of these limits when making elections.
According to the National Institutes of Health, the Dependent Care FSA (DCFSA) maximum annual contribution limit for 2025 is “$5,000 per household or $2,500 if married, filing separately.”
Qualifying Expenses
The care must be necessary to enable the employee (and their spouse, if applicable) to work, look for work, or attend school full-time.
Expenses that can be covered by the Dependent Care FSA:
- Care of dependent children under age 13 by a babysitter
- Daycare center expenses
- Expenses in before or after school programs
- Daycare expenses of a parent or grandparent needing care while you work
- Care of a child over 13 who is incapable of self-care
- A spouse who is unable to work or care for themselves
Does Dependent Care FSA Roll Over?
Employees should be aware that if their funds are unused by the end of the year, those funds will be forfeited to the company. Generally, there is a grace period to help prevent employees from losing their funds, but they must be careful when calculating their contribution amounts.
What Are the Advantages of Dependent Care FSA for Your Business?
Offering a Dependent Care FSA as part of your company’s benefits package provides numerous advantages:
- Attracts talent. Offering a DCFSA can make your company more appealing to potential employees, especially those with families. It demonstrates that you value work-life balance and understand the challenges faced by working parents and caregivers.
- Enhances employee retention. Employees feel valued and appreciate the company’s investment in their well-being. This creates a sense of loyalty and reduces turnover.
- Improves productivity. By alleviating the burden of dependent care, employees experience reduced stress and improved well-being, helping them be more focused and productive.
- Decreases absenteeism. When employees have access to affordable dependent care, they are less likely to miss work due to caregiving emergencies.
- Yields payroll tax savings. Because employee contributions to a DCFSA are made on a pre-tax basis, your company can save on payroll taxes.
- Cultivates a positive company image. Offering a Dependent Care FSA enhances your company’s reputation as a socially responsible employer that cares about its employees’ well-being.
Your Benefits Partner: Employers Resource
With health and caregiving costs on the rise, employees are increasingly seeking benefits that provide financial relief. A Dependent Care Flexible Spending Account can be an excellent way of addressing this need, by providing flexibility and tax savings.
At Employers Resource, we help businesses find sensible and affordable benefits options for their employees, while taking care of the paperwork and details related to administering these benefits. As your business partner, we can help you create strategic employee benefits packages at competitive rates, while navigating enrollment, deductions, reporting, eligibility, and more.
Ready to elevate your business’s benefits offer? Contact us today to find out how a comprehensive Dependent Care FSA can attract and retain top talent.
