Before 2020, it was rare to find someone who worked from home full time. According to the U.S. Bureau of Labor Statistics, only 6.5 percent of workers in the private business sector worked primarily from home in 2019. If you knew one of these rare remote workers, you might have envied their flexible schedule, allowing them to work odd hours, pick up their kids from school, or do laundry while on a Zoom call. But during the COVID years, all of that changed. “Working remotely” became the new normal, and most employees settled into a flexible routine that allowed them to set their own work schedule.
Four years later, things have definitely changed back. Recently, top companies including Apple, Google, IBM, Salesforce, Zoom and many more are mandating that employees return to the office full time. More companies will surely follow suit, leaving employees scratching their heads over their newfound love of working remotely and the ease with which they’ve found work-life balance.
Balancing work and family care while returning to the office full time will present challenges for most employees. In fact, a 2024 survey by the Conference Board found that 45% of HR leaders expressed difficulty retaining workers at organizations where on-site work is mandated. However, when organizations allowed employees to choose where they work, only 15% of HR leaders reported it was difficult to retain workers.
Asking your employees to return to the office full time can be a difficult decision for many businesses, which is why offering your employees the very best benefits, such as a Dependent Care FSA (DCFSA), can become your company’s differentiator.
What is a Dependent Care FSA?
A Dependent Care FSA is a type of flexible spending account that allows employees who work or attend school to allocate pre-tax dollars to cover eligible care costs for their dependents. These accounts help reduce taxable income, providing a practical way for employees to save money and manage their responsibilities more effectively. Dependent Care FSAs can also help create a more balanced, engaged, and motivated workplace, allowing parents to pursue their careers while managing family obligations.
Top 5 Eligible Expenses for a Dependent Care FSA
Dependent Care FSAs can cover various expenses related to dependent care. Common eligible expenses include:
- Childcare services, such as daycare, preschool, or nanny services for children under the age of 13.
- Before and after-school programs that provide supervision beyond regular school hours.
- Summer day camps (excluding overnight camps) that keep children active and engaged.
- Elder care for aging parents.
- Disabled spouses or dependents who need assistance.
These expenses can be reimbursed by submitting documentation or using a debit card if accepted by the provider. Employees can submit expenses for dependent care monthly using a recurring expense form, or they can save expenses and request reimbursement in a lump sum at year-end, like a bonus.
How Much Can Employees Contribute to a DCFSA?
The IRS sets annual contribution limits for Dependent Care FSAs. Typically, employees can contribute:
- Up to $5,000 per household annually if married and filing jointly or if single.
- Up to $2,500 annually if married and filing separately.
DCFSA funds are available based on contributions made through payroll deductions. This structure allows employees to potentially save up to 30% in taxes since contributions to a DCFSA are not subject to payroll taxes. This arrangement enables employees to take home more of their paycheck, potentially saving up to $1,500 in pre-tax contributions.
Unlike Health or Limited FSA accounts, Dependent Care FSA funds are accessible on a dollar-for-dollar basis but cannot be used before payroll deductions are made. Employees should carefully consider their annual allocation since DCFSA funds cannot be rolled over to the next year.
Top 3 Reasons to Offer Dependent Care FSA
Offering a DCFSA is not just a financial benefit for employees—it’s a strategic advantage for employers too. Here’s why:
- Support Employee Well-being: By addressing the high costs of dependent care, employers demonstrate they understand and value their employees’ needs.
- Improve Retention and Recruitment: Benefits like a DCFSA set employers apart in a competitive job market, helping to attract and retain top talent.
- Tax Benefits for Employers and Employees: Contributions to a DCFSA reduce payroll taxes for employers, creating a win-win situation for both parties.
When Can Employees Contribute to a Dependent Care FSA?
A qualifying life event can trigger a change in DCFSA elections. These life events include marriage, divorce, changes in the number of dependents, birth, adoption, death, changes in daycare provider, a child turning 13, court orders, or fluctuations in the qualifying daycare expenses. These events allow for midyear changes outside of the regular open enrollment period.
Dependent Care FSAs—A Strategic Benefit
As dependent care costs continue to rise and remote work decreases, employees are prioritizing workplace benefits that support their family responsibilities. By offering a Dependent Care FSA, employers can empower their workforce to focus on their careers without compromising the quality of care for their loved ones. This approach can not only boost employee morale but also foster loyalty and create a more engaged workplace.
Flyte HCM simplifies the process of offering a Dependent Care FSA by offering employers an innovative platform that streamlines compliant administration while providing employees with a user-friendly experience for managing claims and accounts. With Flyte HCM, you can confidently offer this valuable benefit with ease at any point throughout the year.
Providing a Dependent Care FSA is a meaningful way to support your employees and their families. Let Flyte HCM help you enhance your benefits package, reduce costs, and promote a healthier, more balanced workplace.
To learn more, read Dependent Care Accounts: A Comprehensive Guide or contact Flyte today.
