Summer break doesn't have to break the bank: Dependent care FSAs offer big savings
Summertime is here. The kids are on summer break and that means goodbye to homework, venturing outdoors, relishing free time -- and more child care expenses for working parents. Parents who did their homework during open enrollment and signed up for a Dependent Care Flexible Spending Account (FSA), can chalk up on savings on their summer break child care expenses.
A Dependent Care FSA works by allowing an employee to contribute pre-tax dollars into an account for child care expenses so that the employee can work. An employee designates a specific amount each year - - up to $5,000 for parents filing jointly or $2,500 each for parents filing separately. Reimbursement of child care expenses is based on Internal Revenue Service (IRS) rules. Parents who elect Dependent Care FSAs typically can save up to 30 percent in taxes on the money they set aside for eligible expenses. Eligible dependents of employees include:- A dependent under age 13.
- A child under the age of 13 for whom they have custody if they are divorced or legally separated.
- Their spouse who is physically or mentally incapable of self-care.
- Their dependent who is physically or mentally incapable of self-care.
"Employers who offer Dependent Care FSAs can have a potentially higher employee retention rate since not every employer offers such an account," says Jocelyn Freitas, Ceridian's Consumer-Directed Health Care product manager. "Employers also can benefit because their employment tax base is reduced by the amount of the dependent care FSA contributions."
Family favoriteAccording to the 2005 SHRM Benefits Survey, benefits that help employees balance their work and personal lives remain popular. Among these, Dependent Care FSAs were again the most commonly offered family-friendly benefit. Almost three out of four HR professionals (79 percent, up from 73 percent) said their organizations offer this benefit. An article from the U.S. Department of Labor Bureau of Labor Statistics indicated that 15 percent of workers in small organizations with less than 100 employees had access to Dependent Care FSAs compared to 47 percent of employees at larger organizations with more than 100 employees. (Source: Pretax Benefits: Access to Section 125 Cafeteria Benefits and Health Savings Accounts in the United States, Private Industry, March 28, 2007.) Of course not all expenses are eligible under FSA guidelines. Ineligible expenses include overnight camps, field trips, private school tuition and expenses K-12, school lunches and clothing, such as uniforms. Examples of eligible dependent care expenses include:
- Babysitters (payments are not reimbursable if the babysitter is the employee's dependent under the age of 19).
- Family daycare, which is child care in the home of the provider.
- Child care centers not located in a residence.
- Nanny/au pair who provides care in the employee's home.
- After-school programs, church programs and other state-licensed programs.
- Nursery and preschool, which are primarily for care and well-being and not educational reasons.
Ceridian Flexible Spending Account Services
Flexible Spending Accounts are most successful when they are easy to understand and use, and that's what makes Ceridian a leader in FSA administration. Ceridian's FSA Services solution provides your company with marketing collateral and communication and enrollment materials to help your employees understand the ins and outs of Dependent Care FSAs so they can make the best choices for their specific situation. Your employees can even estimate their reimbursable expenses by accessing our FSA Savings Calculator for individuals.
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