Bipartisan legislation recently introduced in the U.S. House of Representatives would allow small businesses to offer dependent care flexible spending accounts (DCFSAs) to their employees.
In DCFSAs, employees set aside pre-tax income to pay for eligible child care and dependent expenses such as daycare and after-school care. While many larger businesses offer the accounts,
only 29 percent of people who work for businesses with fewer than 100 employees have access to a DCFSA.
The Small Business Dependent Care FSA Opportunity Act would create a tax credit for businesses with 100 or fewer employees earning at least $5,000 annually to establish and administer DCFSAs. The credit would cover startup and administrative costs and the cost of educating employees about the benefit.
Credits would be up to $250 per non-highly compensated employee with a minimum credit of $500 annually and a maximum credit of $5,000. Employers would be permitted to claim the credit for the first three years they offer a DCFSA plan.
U.S. Reps. Danny Davis (D-IL), Nathaniel Moran (R-TX) and Adrian Smith (R-NE) introduced the bill.
“The tax code is an important part of a comprehensive federal effort to help families struggling with the high cost of child care,” Davis said. “This change will work together with essential child care grants and child care tax credits to give a tax break to families to help them thrive.”