If you don’t offer a Dependent Care FSA, consider setting one up. If you do offer one, be sure to let your employees know what it is and how it works. It can become one of your most important and valued benefits.
Why You Should Care About Dependent Care Benefits
Did you know that in 2018, the number of two-parent families where both parents were employed was nearing 65%1? Then consider that single-parent households, which in 2017 accounted for about one-third of all the children in the US,2 and it becomes apparent that daycare is a critical need for many employees.
Companies are helping employees cope with the lifestyle demands of childcare by implementing work-life benefits such as eliminating meetings at the very beginning and end of the workday so that parents can drop-off and pick-up their children without conflicts. Other employers allow parents the flexibility to work hours that mesh better with daycare schedules. Some provide emergency daycare resources. While those are all good, none of them help parents manage their biggest challenge: the cost.
Daycare Can Cost More Than College
Just as employees’ need for childcare has risen dramatically, so has the price for those services. In 2019, 70% of US families spent more than 10% of their income on childcare—that’s 3% higher than what the government defines as “affordable.”3 In 30 states it costs more per year to put an infant in daycare than to send an older child to a state college.4 The high cost of dependent care is pulling valuable employees out of the workforce. In a survey conducted by care.com, 25% of mothers said the cost of daycare forced them to give up their jobs and to stay home with their children.5
In 2020, no benefit program can afford to ignore the challenge of dependent care expenses. That’s where a Dependent Care Flexible Spending Account (DCFSA) comes in.
Child Care Savings of up to 30%
A Dependent Care FSA lets employees set aside up to $5000 in pretax dollars for qualified daycare expenses for children younger than age 13. That money can be used to pay for licensed nursery schools, qualified childcare centers, nannies, preschool tuition, summer camps, and more. The tax savings realized by enrollment in this plan can effectively save employees up to 30% on their childcare expenditures.
Helping Millennials Already Struggling with College Debt
Dependent care benefits are sometimes overlooked as a tool for recruiting and retaining Millennial talent. But as more and more Millennials have children, the high cost of child care will become a prominent consideration in their decision where to work, especially since many young workers are already managing substantial student loan debt.
A Must-Have for Generation X
For many Gen Xers, the challenge of paying for childcare is only part of the story. These members of the so-called “Sandwich Generation” sometime find themselves needing to provide dependent care for both their children and their parents. A Gallup survey found that 11% of managers from Generation X are caring for an elderly or disabled person.6 Fortunately, a DCFSA can also be applied to dependent care for older relatives unable to care for themselves, providing that the person lives with you and is classified as a dependent on your tax return. In some cases, Gen Xers with both children and parents as dependents can utilize the DCFSA and a childcare tax credit.
Keep Valuable Baby Boomers on the Job
While most Baby Boomers are past the stage in life where childcare is a concern, close to 25% of Boomers report that they were forced to quit their jobs in order to care for a family member or spouse.7 Fortunately the DCFSA can be used for dependent care for spouses who are unable to care for themselves. Offering it is one way to keep some of your most experienced workers on the job.
An Underutilized Benefit
According to the Society for Human Resources Management (SHRM), more than 75% of employers say the importance of caregiving benefits will increase over the next several years, especially in regard to care for elderly and ailing family members.8 Eighty-six percent of employees say they wish they had child care benefits.9 Yet Dependent Care FSAs are significantly underutilized. According to MarketWatch, only 44% of eligible parents were enrolled in a work-sponsored plan in early 2018.10
The opportunity is there. If you don’t offer a Dependent Care FSA, consider setting one up. If you do offer one, be sure to let your employees know what it is and how it works. It can become one of your most important and valued benefits.
Sources:
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Bureau of Labor Statistics: Employment Characteristics of Families—2018: https://www.bls.gov/news.release/pdf/famee.pdf
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“About one-third of U.S. children are living with an unmarried parent,” Pew Research, April 2018: https://www.pewresearch.org/fact-tank/2018/04/27/about-one-third-of-u-s-children-are-living-with-an-unmarried-parent/
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“This is how much child care costs in 2019,” Care.com, July, 2019: https://www.care.com/c/stories/2423/how-much-does-child-care-cost/
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Ibid
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“The Overlooked Benefit Gen X Workers Need,” Fast Company, May 2018: https://www.fastcompany.com/40568411/the-overlooked-benefit-gen-x-workers-need
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“Workplace Benefits Resource Guide…,” LIMRA, 2017: http://tiny.cc/limra2017
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“The Overlooked Benefit Gen X Workers Need,” Fast Company, May 2018: https://www.fastcompany.com/40568411/the-overlooked-benefit-gen-x-workers-need
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“This is how much child care costs in 2019,” Care.com, July, 2019: https://www.care.com/c/stories/2423/how-much-does-child-care-cost/
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“Fewer than half of parents take advantage of this money-saving tax break,” MarketWatch, Feb. 2018: https://www.marketwatch.com/story/fewer-than-half-of-parents-take-advantage-of-this-money-saving-tax-break-2018-02-08
