Dependant Care FSA

What is a Dependent Care Flexible Spending Account?

Dependent Care Flexible Spending accounts (DCFSAs), governed under Sections 125, 105, 213 and other sections of the IRC (Internal Revenue Code), allow participants to set aside pre-tax payroll dollars for the payment of a wide variety of dependent care expenses. Dependent Care expenses eligible for reimbursement are listed in the IRC as cited elsewhere on this site. DCFSAs have become increasingly accepted and popular over the last fifteen years. DCFSAs are now a standard component in the benefit plans of most public and private organizations. Employees like them because they help to increase the employee's spendable income. For most employees with daycare expenses, DCFSAs generally provide tax relief which exceeds the value of the Federal Childcare Tax Credit. Furthermore, the cost of maintaining a DCFSAs is more than covered by the FICA savings to the employer.

The FSA Accounts You Should Not Fail to Serve Well; Dependent Care FSAs

Many employers still do not appreciate the financial value of this terrific tax benefit to both the employer and the employee. Due to the high cost of daycare, participating employees tend to fund DCFSAs at a much higher level than other FSAs, frequently reaching the maximum federal limit of $5,000 per married employee filing jointly, or Head of Household. Tax savings to the employer on a $5,000 annual contribution is in excess of $30.00 per month. Since the cost charged by the administrator is a small fraction of this amount, DCFSAs, which can save the participant over $2,000 per year in taxes, are also profitable for the employer! Employers who are complacent in this area simply raise the cost of their plans by discouraging the participants who offer the best employer tax gains. It makes sense to select a high-quality vendor. Since Daycare FSAs are generally (but not always) combined with Health Care FSAs, you may also choose to read this same section under the Healthcare FSA topic for more factors to consider.

The Common Sense Behind Outsourcing to High Quality Vendor

DCFSAs, like HCFSAs are one benefit where vendor interacts directly with their employees at a critical time in their lives - when they start a family. With DCFSAs, employees interact directly with the administrator to receive reimbursement as quickly as possible. This makes quality service absolutely critical. Many employees cannot pay their daycare provider, have their daycare FSA contribution deducted from their paycheck, and then wait a week or two or three for reimbursement! This is why the maximum turnaround time for daycare reimbursement claims at Benesyst is guaranteed, by contract, not to exceed two days from the day we receive it to the day we release payment. Daycare participants easily tolerate the reimbursement process when the turnaround time is that quick. In addition, liability to the employer is limited by YTD employee contributions. This is a textbook example of a win/win situation.

How to Find a High Quality Vendor

Benefits outsourcing is now utilized by nearly 90% of U.S. companies. It's no longer a matter of whether to outsource, but rather to whom. Yet selecting a vendor remains a daunting task for most benefit managers. How do decision-makers tell the difference between the truly excellent and mediocre performers in benefit administration? No vendor claims to be "mediocre," yet Benesyst takes over cases from mediocre and even poor performers every month.

How can an employer avoid these pitfalls? It takes lots of old-fashioned due diligence, pointed questions, and reference checking. If you know a demanding employer who is pleased with their administrator, that's a good start. An experienced professional benefits consultant or broker - one who has worked with a variety of vendors for many years - can be very helpful. Over time, these consultants and brokers come to find vendors which tend to please their clients the most.

Or you can contact Benesyst directly. We'll provide you with a questionnaire that you can include with your Request For Proposal. This, in addition to reference checks and on-site visits, can help you make your choice.