How a Dependent Care Assistance Program Can Enhance Your Benefits Package

A dependent care assistance program (DCAP) could be a simple solution for employers looking to support employees and offer a more attractive benefits package. A DCAP, more widely known as dependent care flexible spending accounts (dependent care FSA), is a voluntary benefit plan designed to help offset the cost of child or elder care. As of March 2020, just 43 percent of employees in the U.S. reported have access to dependent care FSAs according to the U.S. Bureau of Labor Statistics. For the remaining 57 percent of employers who don’t offer a DCAP, what’s holding you back?

We’ve previously discussed the benefits of dependent care FSAs, but we want to highlight how adding a dependent care FSA to your benefits plan could give you an edge when it comes to attracting and retaining employees at your organization!

Forget how DCAPs work? These accounts, more commonly referred to as dependent care FSAs, allow employees to set aside up to $5,000 per year in pre-tax funds from their pay to offset the cost of dependent care. The maximum age for a child covered by a DCAP is 13, although this has been temporarily increased to age 14 in the Consolidated Appropriations Act, 2021.

Examples of dependent care covered include:

To learn more about DCAPs, you can download our free eBook Dependent Care FSAs: The Quick Guide to Offering Dependent Care Assistance, Tax-Free.

Anyone working today knows that striking a healthy work-life balance is not an easy feat. Parents and caregivers know this perhaps better than anyone. One in six U.S. workers is a caregiver to a child, adult, or elder, and 56 percent of workers spend more than 40 hours a week caring for a dependent in their household according to a fact sheet produced by Family Caregiver Alliance.

The impact of this tough balance for employees can also affect job performance and productivity of an organization. Absenteeism due to caregiving responsibilities has cost employers $25.2 billion in lost productivity according to a Gallup-Healthways Well-Being Survey.

This is where offering a dependent care FSA can provide some much-needed support to employees trying to juggle their roles as workers and as caregivers. While the tax savings is a perk for employees managing costly care providers, the acknowledgement on the part of employers that their employees may be balancing dual roles is another factor. The Family Caregiver Alliance noted that 28 percent of employees report that their employer doesn’t know about their caregiver status. Taking a vested interest in supporting your employees to establish a healthier work-life balance can help them feel that their needs are being recognized, which could positively impact their engagement at your organization.

It is no secret that child and adult care in the U.S. is expensive. In 2020, the average cost of childcare across the U.S. ranged from $9,100 to $9,600 a year according to a report by Child Care Aware of America.

The cost of adult custodial care varies depending on the type and number of days needed per year. As of 2016, the average national cost of adult day care was $68 per day or $20.50/hour for a home health aide according to the U.S. Department of Health and Human Services. That could add up to over $16,000 or more a year for adult day care and $41,000 or more for a home health aide.

While the IRS annual limits for a dependent care FSA is currently capped at $5,000, this can still offer significant tax savings. For an individual earning $40,000 a year in a 22% federal tax bracket, reducing taxable income by $5,000 can save over $1,000 in taxes. That money saved could be viewed as a coupon applied towards dependent care!*

Employers should be sure to educate employees about this benefit and to illustrate how a dependent care FSA can help them keep some extra money in their pockets.

Let’s face it: hiring and retaining top talent is key for your organization’s success and the bottom line. Losing employees is costly to organizations and competing for all-star job candidates can be tough. In addition, employers today are faced with addressing the needs of an increasingly diverse workplace made up of caregivers from all ages and backgrounds. While some may be new parents, others may be looking after their own aging parents, and some could be caring for partners or spouses who are unable to care for themselves temporarily or permanently.

Offering a DCAP is one way to round out your benefits package to give your employees from all walks of life options to cover their needs in and out of work. The 2019-2020 Willis Towers and Watson global health care survey found that 64% of employees would like a moderate number of benefits choices—they want flexibility without feeling overburdened. While offering health care benefits is often seen as a necessity, giving employees a few voluntary benefits selections is a great way to meet a range of needs.