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As employers seek new ways to support working families and stay competitive in today’s labor market, Dependent Care Flexible Spending Accounts (DCFSAs) are gaining traction. But is offering one the right move for your organization?
In this post, we’ll break down what DCFSAs are, the benefits and challenges of offering them, whether employees actually want them, and how to determine if they should be part of your benefits strategy.
A Dependent Care FSA is a pre-tax benefit account that employees can use to pay for eligible child care and elder care expenses. Employees can contribute up to $5,000 per household annually ($2,500 if married and filing separately) through payroll deductions, lowering their taxable income in the process.
Eligible expenses include:
📘 For more detail, see IRS Publication 503 – Child and Dependent Care Expenses
1. Attracts and retains talent
For employees juggling caregiving responsibilities, this benefit signals that your company values their lives outside of work, a powerful edge in a competitive job market.
2. Provides employer tax savings
Employer payroll taxes (Social Security and Medicare) are reduced based on employees’ pre-tax contributions.
3. Low-cost to administer
Unlike health insurance or retirement plans, DCFSAs are relatively inexpensive and often integrated into existing payroll or benefits platforms.
4. Advances DEI goals
By easing caregiving burdens, DCFSAs especially support working mothers and multigenerational caregivers, helping foster a more inclusive workplace.
1. “Use-It-or-Lose-It” limitation
Unlike health FSAs, most DCFSA funds must be used by year-end or are forfeited, making employee education critical.
2. Limited contribution cap
The $5,000 annual limit may not meet the full needs of families with multiple dependents or high care costs.
3. Eligibility rules can be tricky
Funds must be used for care needed while both spouses work (or are full-time students/caregivers). This complexity can cause confusion without clear guidance.
Yes! Especially post-pandemic.
Ask yourself:
If you answered “yes” to any of the above, a Dependent Care FSA may be a smart, strategic addition.
A DCFSA isn’t a one-size-fits-all benefit—but it’s a high-impact, low-cost option for companies committed to reducing financial stress and promoting work-life balance. For organizations focused on retention, inclusion, and holistic employee well-being, it’s a benefit worth considering.
