Dependent Care Employee Benefits - Are They a Thing of the Past?

Update: Flexible Dependent Care Spending Accounts Losing Ground

Dependent Savings Plan
© Africa Studio - Fotolia.com

There is a growing trend in employee benefits that concerns those who use Flexible Dependent Care Savings plans. It is possible that dependent care benefits could disappear in the very near future due to new legislation currently under fire. 

First off, what are dependent care benefits? Dependent care benefits are also known as flexible spending accounts, which help employees manage the financial burdens of caring for their children or their aging parents.

 

If approved, a new proposal from the White House could eliminate flexible spending accounts and it would also expand the current limitations at the same time. The consumers who will be most affected will be those who fall into the middle-class. This comes at a bad time when families are already feeling the pinch of added Baby Boomers retiring and moving in with their adult children, as well as the millions of working parents in the USA dealing with rising costs of daycare services. 

Let's learn more about these types of employee benefits and how they may be impacted. 

Differing Views on Dependent Care Benefits

There are differing views on dependent care benefits these days. One view, from the Bureau of Labor Statistics, says that these accounts are “valuable benefits for workers and employers.” The other view of these accounts comes from the White House, which describes them as “duplicative” and “unnecessarily complex.” 

Proposed Changes to Flexible Dependent Care Savings Plans 

The changes proposed to the flexible spending accounts by the White House would eliminate the child-care flexible spending account, which is sanctioned by the IRS. It would be replaced with a plan that is broader and would streamline “child-care tax benefits.” The new plan would also triple the maximum credit for middle class families that have children.

How Dependent Care Plans Work Now

So, how do flexible dependent spending accounts work now? Each year, employees contribute a set amount of money each pay period on a pre-tax basis. During the calendar year, employees are allowed to withdraw funds on a tax-free basis with a contribution limit set at $5,000 per year. The money must be used for child-care or dependent care purposes, such as tutoring, daycare, home health care, and any medical, dental or vision expenses incurred.

Problems with Disappearance of FSAs

Should flexible dependent spending accounts disappear, employers are worried about their employees. The main reason is that families who use the benefit will struggle when it comes time to pay for child-care expenses. These accounts pretty much mean money in the employee’s pocket because they do not have to wait for any tax credits. With any new plans, they might need to wait for tax breaks before being able to use the money.

The White House Proposal

The proposal from the White House is called the Child and Dependent Care Tax Credit. It will be for families with children under the age of five with each of those children getting $3,000. Families would also be allowed to receive a 50-percent tax credit for no more than $6,000 of expenses per child under the age of five.

The White House claims that this proposal would make the full credit available to most middle-class families due to the fact that no families qualify for the maximum CDCTC with the current law in place.

The proposal would allow the tax credit for middle class families with young children, older children and disabled or elderly dependents that make no more than $120,000. Most middle class families will be able to choose how much help they need.

Should Dependent Care Savings plans disappear, companies will need to find other ways to supplement the lost money for their employees. New employee benefits that offer ways to pay for dependents may emerge out of this effort. 

Image Credit: © Africa Studio - Fotolia.com