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With caregiving costs rising faster than inflation, it\u2019s harder than ever to juggle parenting young children or caring for elderly relatives while also working nine to five. Your business can help support caregiving employees and boost productivity by offering dependent care flexible spending accounts (FSAs). This benefit provides a tax-advantaged method to pay for eligible caregiving expenses using pretax dollars.<\/p>\n
Or maybe you want to make a bigger commitment but are concerned about the costs. If you provide child care directly to workers \u2014 for example, by setting up a day care facility in your building \u2014 your company may qualify for a significant tax\u00a0credit.<\/p>\n
When employees opt in<\/strong><\/p>\n To sponsor dependent care FSAs, you\u2019ll need to implement a dependent care assistance program (DCAP), which enables you to retain ownership of your workers\u2019 FSAs. Participating employees must opt in, typically during your company\u2019s open enrollment period or after experiencing a qualifying life event. Then they make pretax compensation deferrals to their accounts, up to $7,500 annually for married couples filing jointly, single filers and heads of households, $3,750 for those married and filing separately. These amounts aren\u2019t indexed for inflation.<\/p>\n Workers can use their FSA balances to pay for eligible expenses, including day care, before- and after-school care, summer day camps, and care for dependent adults who can\u2019t care for themselves. Qualifying expenses must enable participants (and, if applicable, their spouses) to work or seek employment. Using pretax dollars to fund accounts allows participants to pay for qualifying care while reducing their taxable incomes.<\/p>\n Employers win, too<\/strong><\/p>\n For employers, sponsoring dependent care FSAs also offers potential advantages. First, these accounts can help attract strong job candidates and retain employees.<\/p>\n Second, because participants\u2019 contributions occur pretax, they\u2019re exempt from Social Security and Medicare taxes. That reduces your business\u2019s (and your employees\u2019) payroll tax burden. To increase dependent care FSA participation, you may make contributions to employees\u2019 accounts. However, the $7,500\/$3,750 annual contribution limits apply to combined employer-employee contributions. Note that you can\u2019t deduct contributions as a business expense.<\/p>\n You\u2019ll need to ensure that your DCAP complies with IRS regulations, including nondiscrimination rules. Proper recordkeeping, timely reimbursements and clear communication are also critical. Be sure to educate participants about the \u201cuse-it-or-lose-it\u201d rule that says FSA balances generally must be spent by the end of the year. (Unused account funds generally revert to employers.) Be sure to train employees to estimate expenses and submit claims to minimize the risk of losing FSA funds. And let participants know their FSAs aren\u2019t portable \u2014 meaning they can\u2019t take their balances with them if they leave your company.<\/p>\n Tax help with costs<\/strong><\/p>\n Another way to retain loyal, hardworking staff is to provide child care directly. For 2026, you may be able to claim an employer-provided child care tax credit equal to 40% of your qualified expenses for providing child care to employees, plus 10% of qualified resource and referral expenditures, up to $500,000. For eligible small businesses, these amounts are 50% and up to $600,000, respectively. The maximum dollar amount will be adjusted annually for inflation after 2026. (The additional 10% credit for resource and referral expenses will continue to be available.)<\/p>\n Qualified costs include those spent to acquire, construct, renovate and operate a child care facility. Or you can claim expenses for contracting with a licensed child care facility. If you provide on-site care, at least 30% of the enrolled children must be your employees\u2019 dependents.<\/p>\n Competitive package<\/strong><\/p>\n Dependent care FSAs and employer-offered child care can be competitive additions to your employee benefits package. But because of the resources involved, think carefully before designing a DCAP or establishing a child care facility. Your workforce may not want them. Consider distributing a survey to gauge interest before you commit to offering new fringe benefits.<\/p>\n And to help ensure you\u2019re offering the most cost- and tax-effective benefits to your workforce, contact us. We can review your benefits lineup, potentially suggest changes and advise on program setup and administration.<\/p>\n \u00a9 2026<\/em><\/p>\n <\/body> With caregiving costs rising faster than inflation, it\u2019s harder than ever to juggle parenting young children or caring for elderly relatives while also working nine to five. Your business can help support caregiving employees and boost productivity by offering dependent care flexible spending accounts (FSAs). This benefit provides a tax-advantaged method to pay for eligible […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,14,10],"tags":[8,11,12],"class_list":["post-17519","post","type-post","status-publish","format-standard","hentry","category-articles","category-business","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17519","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=17519"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17519\/revisions"}],"predecessor-version":[{"id":17520,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17519\/revisions\/17520"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=17519"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=17519"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=17519"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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