In 2021, and as a result of the pandemic, child care benefits were expanded. Yet, unfortunately, those expanded benefits are no longer available for 2022. But there’s still a great demand for this kind of help, and many local businesses are responding.
As the nation’s labor shortage continues, many small employers are weighing the best benefits to offer both prospective and current employees, and among those in high demand is assistance with dependents.
Greg Grimm, a vice president at Philadelphia-based employee benefits and human resources consulting firm Exude Inc., said he’s seeing child care benefits become a priority for many of his firm’s clients.
“We work with 250 small- and mid-sized clients across the Philadelphia market and many of them are asking, ‘How can we better help our employees reduce the barrier of care?’” he said. “Dependent care is a big expense for many employees in the area and employers are looking for more ways to alleviate this problem.”
So what kind of child care benefits can your company provide? In the end, and particularly if you’re a small business, it comes down to four options.
Flex spending can help
The first is helping reimburse employees through a Dependent Care Flexible Spending Account, or DCFSA. With a DCFSA plan, employees filing individually or with a joint tax return can contribute up to $5,000 a year, pre-tax, and then submit dependent care expenses — those directly related to professional caregiving services that allow an employee to work — to your plan’s administrator for reimbursement. Most plans can allow any unused funds up to $550 to carry over to the next year.
One interesting benefit to consider is that employers can also contribute to a DCFSA and get a tax deduction (and the employee doesn’t get taxed) as long as the total contribution does not exceed the $5,000 cap.
Another benefit: Elder care may be eligible for reimbursement with a DCFSA if the adult lives with an employee at least eight hours of the day and is claimed as a dependent on the employee’s federal tax return.
Expert Business Development, which provides its clients with outsourced lead generation, relationship building, and appointment setting services from its Bala Cynwyd offices, offers this type of reimbursement plan and has found it to be very popular.
“Over the years we have recognized that helping our people with their child care challenges is not only the right thing to do, but it’s really good for business because it makes us a more attractive employer,” said Ted Rosen, company president.
Advise workers about this tax credit
Your next offering should provide expert advice about the Child and Dependent Care Tax Credit, or CDCTC.
A family can claim this credit for children under the age of 13, if both parents are working. For 2022, taxpayers can deduct up to $6,000 of expenses for two or more qualifying people such as nanny-share arrangements, day care, preschool, and day camp for your qualifying persons, and the care can be provided either at your home or outside your home.
Be aware that amounts used for this credit can’t also be used for the DCFSA, and the amount of the credit drops based on income levels.
It’s complicated, which is why some of my clients make their accountants or benefit advisors available for their employees to consult and ask questions about this tax credit.
Build your own center
Next is providing your own child care facility or contracting with an existing child care provider. Good ones will not only offer spaces for your employees’ kids but also do so at potentially lower rates negotiated in advance.
Better yet, there’s an available federal credit against the taxes you owe of up to 10% of your costs (to a maximum of $150,000) for providing this assistance.
Some of my clients have partnered with other businesses to share costs.
Making your culture a selling point
Finally, you should be looking closely at your company’s culture.
One of the best reasons for an employee to work for a small business is the potential flexibility thanks to less paperwork and bureaucracy.
By offering tailored schedules and remote working options for employees who have dependent care responsibilities, you can argue that your firm is more accommodating and flexible than a bigger company. This is the kind of benefit that could make a difference when recruiting talent and retaining workers.
Laura Kelly, who owns the Handwork Studio in Media, which operates creative and craft-focused camps in five states, does this. She said that her company’s flexible scheduling options help her recruit and retain her employees, most of whom are women.
“Our workforce is 86% female so we know how important dependent care is,” she said. “We tell our employees that if your child is sick, for whatever reason, we don’t count sick days, and if you have to go to school for whatever reason, just do it. I started the business as a mother, so I’m really aware of what the needs are.”
At Exude, Grimm sees among his clients that offering dependent care benefits is a must for companies that want to compete for employees.
“We’re seeing a talent war right now,” he said. “Employees want a better work-life balance and, obviously, dependent care is a big part of that. Companies that don’t offer these kinds of benefits are putting themselves at a disadvantage.”
Gene Marks is a certified public accountant and the owner of the Marks Group, a technology and financial management consulting firm in Bala Cynwyd.