How to help families with dependent care FSAs
While some workers will need their dependent care FSAs more than ever this year, others will see its value diminish.
The last six months have turned our traditional notions of childcare upside down. Schools host virtual learning from home, daycare facilities and after-school programs have been closed, summer programs canceled, and kids and families are spending more time at home than ever. It’s taking a toll. Thirteen percent of U.S. parents had to quit a job or reduce their working hours due to a lack of childcare, according to Northeastern University survey.
And while many parents have been able to work from home while trying to juggle child-rearing responsibilities at the same time, essential workers did not have this luxury. They needed to go to work and were often found scrambling for options for their young children.
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As we all know, childcare is expensive. Whether it’s a daycare or an in-home sitter, prices have skyrocketed in recent decades, making many parents feel like they are paying multiple rents or mortgages. Many in Congress have long acknowledged this, but solutions have been elusive.
One thing that has been done for years is a little boost to pay for dependent needs on a tax-effective basis. This is known as the dependent care Flexible Spending Account (FSA). It accounts for children as well as other dependents such as aging parents living in the same household as a working parent. But it’s long overdue to be updated. This salary reduction contribution was set at $5,000 per year over 20 years ago, and it has not been adjusted for inflation. $5,000 per year for childcare in the United States is not sufficient.
While some workers, like nurses and first responders, will need their dependent care FSAs more than ever this year, others typically use the funds for programming like summer camps and after-school programs. With many of these programs canceled for the year, these families need flexibility in how to use the funds. Under most scenarios, employees do not get the opportunity to reduce or stop their dependent care FSA contributions midyear.
Congress needs to act to make sure that dependent care FSAs have a higher limit (at least double!) and more flexibility for funds set aside for 2020, such as allowing for taxable refunds or for the plan to be carried over to the following year. There are several bills that address some of the current challenges of dependent care FSAs, including H.R. 6800, H.R. 6958, H.R. 7008, and S. 3972. This legislation would give employers the flexibility to allow employees to rollover all dependent care FSA contribution from a plan year ending in 2020 to a plan year ending in 2021.
That’s a good start.
Dependent care assistance plans provide a meaningful way to assist employees with the expenses of the care of children and other dependents like aging parents while they themselves continue to participate in the workforce. Employer benefits like dependent care FSAs are not the panacea to our country’s childcare needs. However, they serve as an important tool for families as we navigate these unprecedented times.
Congress needs to support family-friendly solutions and allow parents more than $5,000 a year for pre-tax childcare spending, and make sure there are added flexibilities due to COVID-19 factors. In addition to putting more money in families’ pockets, dependent care FSAs serve as a valuable budgeting tool for many through payroll deductions.
America’s small businesses and employers want to be part of the solution by providing tools and benefits for employees to succeed. Congress needs to act to bring these resources in line with the times.
Christa Day is executive director at ECFC, a non-profit organization dedicated to maintaining and expanding employee benefit programs on a tax-advantaged basis.
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