If you have children, elderly parents, or other dependents who need care while you work, your employer may offer benefits that can significantly reduce your out-of-pocket costs. These are easy to overlook, so it’s worth taking a closer look at what’s available to you.
A Dependent Care Flexible Spending Account (DCFSA) allows you to set aside pre-tax dollars (up to $5,000 per household per year) to pay for qualified dependent care expenses. This includes daycare, preschool, before- and after-school programs, summer day camp, and in-home care for dependents who can’t care for themselves. Because contributions are pre-tax, a DCFSA can save you hundreds or even thousands of dollars per year depending on your tax bracket.
Note that a DCFSA, like a regular FSA, generally operates on a use-it-or-lose-it basis, so plan your contributions carefully based on your expected expenses.
Some employers also offer backup care programs, which provide short-term childcare or elder care when your regular arrangements fall through. This can be a lifesaver when your daycare closes unexpectedly, your nanny calls in sick, or an elderly parent needs temporary support.
There may also be resources available through your EAP, such as referrals to vetted childcare providers, elder care consultation, or support navigating parental responsibilities during a life transition.
Additionally, the federal Child and Dependent Care Tax Credit may be available to you. This credit can reduce your tax bill based on a percentage of your qualifying care expenses. Your tax advisor can help you determine whether the DCFSA or the tax credit (or a combination) offers the best savings for your situation.
Taking the time to understand and use these benefits can take real financial pressure off your family.