Should Your Small Business Offer Dependent Care Benefits?

Transcript

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Gene (00:02):

Hey everybody, this is Gene Marks and welcome to The Hartford’s Small Biz Ahead podcast. This is the weekly podcast that I do where I share some advice and tips and thoughts on helping you in your business. If you want more advice, more tips, more thoughts in writing and to check out our other podcast, please visit us at SBA.TheHartford.com or SmallBizAhead.com. Lots of great content to help you run your business. This week, let’s talk about dependent care because it’s a big issue for our employees and also a big thing that we can be doing, depending on our benefits to attract good employees to our businesses, as well as retain our best employees as well. I mean like in 2021 and as a result of the pandemic, childcare benefits were expanded, right? But unfortunately those expanded benefits are no longer available for this year in 2022.

Gene (00:55):

However, there’s still a great demand for this kind of help and many businesses that I know are responding to this demand. Our nation has a big labor shortage right now and many small employers that I know they’re weighing the best benefits to offer both perspective and current employees and among those in high demand are assistance with dependence, right? These are the kinds of benefits that people wanna do. 47%, according to some estimates of the workforce are part of the sandwich generation. That group of people that’s caught between providing for both their children and their parents. So you can understand like currently 50% of workers out there, they need this kind of help. They need these kind of benefits. So when I talk to different HR executives and experts in the area, they’re all saying that they are seeing childcare benefits becoming more of a priority with many of their clients.

Gene (01:50):

Many of these companies, small businesses are asking how can we better help our employees reduce the barrier of care? Dependent care is a big expense for many employees and employers are just looking for ways to help alleviate the problem. So what kind of childcare benefits, what kind of dependent care benefits can your company provide? So in the end, particularly if you’re a small business, it comes down to four benefits. The first is that you can help reimburse your employees through a dependent care, flexible spending account or DCFSA. With a DCFSA plan, employees who are filing individually or with a joint tax return can contribute up to $5,000 per year, pre-tax and then submit these dependent care expenses. Those that are directly related to professional caregiving services that allow an employee to work, they can submit them to your plans administrator for reimbursement, from their account. Most of these plans can allow any unused funds up to $550 to carry over to the next year as well. So it’s a dependent care, flexible spending account. By the way, one other interesting benefit to consider is that employers…

Gene (02:59):

Can also contribute to these DCFSAs and get a tax deduction and the employee doesn’t get taxed for this contribution. As long as the total contribution does not exceed $5,000. Another benefit – elder care may be eligible for reimbursement under these plans. If the adult lives with the employee at least eight hours of the day and has claimed as a dependent on the employee’s federal tax return. They’re called dependent care, flexible spending accounts, very inexpensive to set up, a great benefit for your employees and a great potential benefit you can provide if you want to contribute to their, dependent care expenses as well. In addition to that, there are many clients that are offering more education for their employees because there’s the child independent care tax credit. So this is an individual tax credit it’s taken on an employee’s personal tax returns and really has nothing to do with you as an employer, but just be aware, right, this individual childcare, independent care tax credit, a family can claim this credit for children under the age of 13 and where both parents are working, they can deduct up to $6,000 of expenses for two or more qualifying kids, such as a nanny share arrangement, daycare, preschool day camp, you know, and the care can be provided either at the home or outside of the home.

Gene (04:21):

Just be aware that these personal childcare tax credits can’t be used at the same time as these dependent care flexible spending accounts that I mentioned earlier, they’re in addition, they’re for separate expenses, but honestly and by the way, the credit decreases with income levels. It’s complicated, but honestly you should be making your own, employees aware of this, have your accountants maybe make a benefit advisor aware of it. So just at least consult and help with your employees. I talked about four options. We’ve discussed two already. One is the dependent care flexible spending accounts that you can offer your employees. And number two is just simply education for your employees, provide experts to help them maximize their own childcare and independent care tax credit on their individual returns.

Gene (05:14):

Third is you can provide your own childcare facility or you can contract with an existing childcare provider. I mean, good ones will not only offer spaces for your employees’ kids, but do so at potentially lower rates than you can or you negotiate, ’em in advance. Better yet, there’s an available federal credit against the taxes you owe of up to 10% of your costs for a maximum of $150,000 for providing this kind of assistance. Some of my clients have partnered with other businesses in their local areas in order to share their costs. So again, the dependent care flexible spending account, education for your employees to maximize their individual dependent care tax credit. And number three…

Gene (05:56):

Maybe considering having your own childcare facilities or contracting with a childcare provider. You get a tax credit for doing that. Finally, you wanna look at your company’s culture, right? I mean, one of the best reasons for an employee to work for a small business is the potential flexibility that could be provided thanks to less paperwork and bureaucracy. By offering tailored schedules and remote working options for employees who have depending care responsibilities, you can argue that your firm is more accommodating and more flexible than a bigger company that has more rules. So this is the kind of benefit that could make a difference. Even when recruiting new talent and retaining your workers. I have one client, a woman named Laura. She operates like a creative and craft focused camp in five states around us. She says that her company’s flexible spending options helps her recruit and retain because mostly her employees are female.

Gene (06:48):

Her workforce is 86% female. And she says, Hey, listen. And being a working mom, I know how important dependent care is. So she tells her employees that their child is sick, for whatever reason, they don’t count sick days. You have to go to school for whatever reason, just do it. She gets it and we should as well as business owners. Providing flexibility in the workplace is a big way to do this. Okay. So let’s sum it all up. One, the dependent care flexible spending accounts you can offer, up to $5,000 in expenses to reimburse your employees. They don’t get taxed, you get a tax deduction. That’s one thing you could do as an employer. Number two, provide counseling and education. Put your accountant or your benefits advisor, make them available to your employees so that your employees can talk to them for advice on maximizing their dependent care tax credit on their individual tax returns.

Gene (07:40):

Number three, consider providing your own daycare or independent care assistance for your employees. You can build or you can contract with an existing place and get a big tax credit for doing it. And four, look at your scheduling. How flexible are you? How accommodating are you to working parents, particularly working moms that find themselves more so than dads, I think, having to show up at schools or do things when their child are sick, do you allow them the time off? Do you ding ’em for doing it or do you not make it part of their sick days. Look at the flexibility that you’re offering your employees, particularly those that have dependent care issues that will go a long way to not only attracting good employees, but retaining your best ones. Hey, my name is Gene Marks. You have been listening to another episode of The Hartford’s Small Biz Ahead. I hope this was helpful in helping you run your business. Again, if you would like more tips or advice or some thoughts on running your business, visit us at SBA.TheHartford.com or SmallBizAhead.com. Thank you so much for listening this week. We’ll be back to you next week with some other type of tip or advice to help you run your business. I’m looking forward to it and I hope you are, take care.

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