As an employer, you’re always looking for ways to offer meaningful benefits that support your employees’ personal and professional lives. One benefit that’s often overlooked but highly valued is the Dependent Care Flexible Spending Account (FSA).
A Dependent Care FSA helps employees cover the cost of care for their dependents while they work—making it easier to balance family responsibilities with career demands. Let’s take a closer look at what these accounts are, how they work, and why they may be a valuable addition to your employee benefits package.
What is a Dependent Care FSA?
A Dependent Care FSA is a special, tax-advantaged account that allows employees to set aside pre-tax dollars to pay for eligible dependent care expenses. These accounts are not for medical costs (that’s what a Health FSA is for)—instead, they cover the care of dependents who need supervision so the employee can work.
Who Can Qualify to Use a Dependent Care FSA?
Dependent Care FSAs can be used for:
- Children under age 13 who need daycare, preschool, after-school programs, or summer day camps.
- A spouse who is physically or mentally unable to care for themselves.
- Any dependent—regardless of age—who cannot care for themselves and lives with the employee more than half the year.
This flexibility makes the benefit useful for a wide range of employees, whether they’re raising young children or caring for an aging family member.
The Tax Advantages
One of the greatest benefits of a Dependent Care FSA is the tax savings. Since contributions are made with pre-tax dollars:
- Employees reduce their taxable income, which lowers the amount they owe in federal, state, and Social Security taxes.
- Employers also save because contributions made to FSAs are not subject to payroll taxes.
It’s a win-win: employees keep more of their hard-earned money, and employers benefit from reduced payroll tax liability.
Contribution Limits
For 2025, the IRS allows employees to contribute up to:
- $5,000 per household per year (or $2,500 if married filing separately).
It’s important to note that these limits apply across all employers. If both spouses have access to a Dependent Care FSA through their jobs, their combined contributions still cannot exceed the IRS maximum.
Why Employers Should Offer It
Offering a Dependent Care FSA shows your employees that you understand the challenges of balancing work and family. By including it in your benefits package, you can:
- Improve employee satisfaction and retention.
- Support a family-friendly workplace culture.
- Provide meaningful tax savings to both employees and your business.
In today’s competitive labor market, this type of benefit can set your company apart.
Ready to Learn More?
At Stepka and Associates, we specialize in helping Arkansas businesses design benefits packages that attract and retain top talent while maximizing their benefits budget. If you’d like to learn more about how a Dependent Care FSA could work for your business and employees, contact us today to speak with an expert.