This Parents Day, consider a DC-FSA option for employees

Every year on the fourth Sunday in July, we recognize parents across the country for their dedication and commitment to their children through National Parents Day. This Parents Day, July 25, is the perfect time for employers to support employees who have dependents at home by considering the benefits options they offer.

One easy solution to further support parents and employees with dependents is to offer the option for employees to opt into a dependent care flexible spending account, or DC-FSA, this open enrollment.

A DC-FSA covers qualified dependent care expenses for children younger than age 13 and is a hidden gem for employees when it comes to budgeting for expenses, such as daycare, nursery school, preschool, and before or after school programs.  It can also be utilized for adult dependents who are incapable of caring for themselves.

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.

Child and dependent care are critical issues and large expenses for many American 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 we are headquartered, the average annual cost of infant care is $12,567 a year, which is 48.3% more per year than in-state tuition for four-year public college.

By augmenting employee benefits packages with a DC-FSA option, it sends a strong message to employees that their employer cares about their work-life balance, which can be an excellent attraction and retention tool.

It is also a straightforward benefit to add to an employer’s suite of offerings.

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.

With a DC-FSA, employees save money by reducing their taxable income and have a convenient way to budget and manage the expense of caring for dependents. The first step for an employee is to estimate their annual FSA contributions carefully and make their election in open enrollment. Regular, pre-tax contributions to the FSA are then deducted from their paychecks.

Unlike a healthcare FSA, the total election amount of the DC-FSA is not available on January 1. 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.

This Parents Day, 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. 

Kevin Robertson is Senior Vice President, Chief Revenue Officer at HSA Bank.