As we reach the mid-point of summer, children and their
parents have settled into their new routines. Kids get to enjoy the summer days
hanging out with their friends, and parents can rest easy knowing that their
child is with a trusted child care provider. However, can every parent rest
easy knowing that they might not be using every tool available to them to help
pay for the cost of child care?
BASE® works with several employers that offer the Dependent
Care Assistance Plan (DCAP) as part of the 125 Cafeteria
Plan. If you have ever utilized a Flexible
Spending Account within the 125 Cafeteria Plan, the
Dependent Care Assistance Plan is very similar.
DCAP is an account established by an employer to allow
employees to set aside money from each paycheck on a pre-tax basis to pay for
qualifying dependent care expenses such as daycare, preschool, before &
after school care, and even elder care.
Employers benefit from this plan by enhancing their employee
benefit package which in turn can help with recruitment and retention of
employees. Of course the biggest advantage of this plan is in the form of tax
savings for the employee. Since these funds are transferred from the employee’s
wages on a pre-tax basis, employees save Federal, State, Social Security, and
Medicare taxes. By setting aside these dollars pre-tax, employees are able to
increase their take-home pay.
As you can see, there are multiple benefits to utilizing the
Dependent Care Assistance Plan within a 125 Cafeteria Plan. One other tax break
to look into would be the Dependent Care Tax Credit. Under some scenarios, you
could qualify for a tax credit while using a flex plan such as the DCAP.
However, no credit is allowed for any child care costs that are paid through a
Even though we have already hit the Fourth of July (and
summer is pretty much over), it’s never too late to save yourself some money. If
you know of an employer that doesn’t offer this type of plan but think they
would be a good candidate, please refer them to BASE®. BASE® always offers a free benefit analysis for
employers looking to see if one of our tax-advantaged plans is right for them.
You can always learn more about our products by calling 1-888-386-9680 and
speaking with a Benefit Specialist.
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