Beginning in 2021, employees who participate in their employer’s DCAP plan may now contribute up to $10,500 annually (up from $5,000). Taxpayers who are married filing separately will see an increase to $5,250 from $2,500
This assistance applies to plan years that begin after December 31, 2020, and before January 1, 2022.
The Act doesn’t amend the current non-discrimination guidance, which means that plans must still ensure that no more than 55% of all dollars in their DCAPs benefit highly compensated workers (generally owners, officers, and/or folks earning $125,000/year or more). So, while this may seem like an enticing opportunity to expand your employees use of DCAPs, employers should carefully consider the impact that doubling the deferral limit might have on their plan.
Plans can be amended retroactively for the change so long as the amendment is adopted by the last day of the plan year in which the amendment is effective.
Check our NEWS and BLOG tabs for current legislative updates during the National Emergency.
Flexible Spending & Dependent Care Accounts are a great way to aid your employees in paying for out-of-pocket medical expenses.
Flexible Spending Account
- Employers may elect to make annual payroll deduction elections up to $2,750 year(2021) for out-of-pocket medical, dental, vision, RX, Therapy (IRS Section 213D costs) for themselves or their dependents.
- Employers benefit from reduced payroll taxes and enhanced employee benefits. If employees total annual elections are $100,000 then EMPLOYER may save $7,650 in payroll taxes!
- Employees benefit from reduced payroll AND income taxes.
- Plans can be designed to allow up to $500 a year of unused money to rollover to subsequent plan year.
- Participation in the FSA plan is not dependent upon enrollment in a group health plan.
- Claims payments made with Debit Card require no/minimal claims substantiation by employee.
- Employees may elect to deduct up to $10,500 for plan years that begin after December 31, 2020, and before January 1, 2022.
- This benefit could easily save employees approximately 30% on their taxes (7.65% in payroll taxes and 20% in Federal/State tax)!
- Employers could save payroll taxes ($5,000 x 7.65%) $387.50 per enrolled employees.
- We feel this is a very under utilized benefit and extra employee education would be worthwhile.
- Unlike the FSA, dependent care elections can be changed throughout the plan year without qualifying events.
- Adult daycare for parents/relatives who you declare as a dependent for tax purposes are also eligible for the $5,000 deduction.
Contact a Corporate Coverage benefit design consultant to see how we can make this benefit work for you!
*Tax Rates vary…tax savings are estimate. Please consult with your tax consultant to review your specific savings.