Corporate Efforts to Make Child Care More Affordable
Featured Guest Blogger July 13th, 2009
Judith Presser is a Senior Consultant at WFD. She has extensive corporate consulting experience, mostly focused on community needs assessments, dependent care feasibility studies, development of new child care centers, and dependent care strategy development. During her tenure at WFD, Judi has worked with numerous clients in the development and implementation of strategies to meet their employees’ dependent care needs and has managed the activities of the American Business Collaboration in five U.S. cities. Please note that the views of our guest bloggers do not necessarily reflect the views of the Sloan Work and Family Research Network.
The average monthly child care fees for an infant in a child care center can be higher than the amount a family spends on food each month, and if a family has more than one child in care, monthly child care fees can be as high, or even higher than, the average monthly mortgage payment, according to 2008 data from the National Association for Child Care Resource and Referral Agencies. Family-friendly companies recognize that helping working parents afford quality care for their children allows parents to be focused and productive at work, enhances employers’ ability to recruit and retain talent, and provides environments where children are protected and nurtured, and at the same time, gain valuable knowledge and skills.
The American Business Collaboration (ABC), WFD Consulting (WFD), and Corporate Voices for Working Families (CVWF) have been working together for more than 18 months to develop a legislative proposal to increase the amount families can set aside for child care through their company-sponsored Dependent Care Flexible Spending Accounts (DCFSA) from $5,000 to $7,500 a year. The current figure of $5,000 was established more than 20 years ago and has not been increased since. The DCFSA is generally the only support available from employers to help employees pay for child care.
Through the efforts of the ABC, WFD, and CVWF, H.R. 2298, the “Expanding Dependent and Child Care Act of 2009,” was introduced in early May to increase the cap on DCFSAs. The new legislation would increase the limit to $7,500 and index it to inflation. Similar DCFSA language has also been introduced in two Senate bills (S.988 and S.997). In S.997, unused DCFSA funds are able to be rolled over to the next tax year.
With the increase in the cap to $7,500, employees could realize an additional savings of $1,000 or more a year, bringing their total savings to more than $3,000 annually on their child care expenses because they do not have to pay federal income taxes or Social Security and Medicare taxes on the funds they’ve set aside. For lower-wage employees, participation in DCFSA may help them qualify for the federal Earned Income Tax Credit (EITC) or may increase their EITC’s because participation lowers the taxable income used to calculate eligibility for the EITC and to calculate the amount of the EITC. Additional savings may be realized on an employee’s state income tax, as well.
Companies and organizations will also benefit. Since an organization does not pay Social Security and Medicare taxes on funds that their employees set aside in DCFSA’s, they save 7.65% of total employee contributions. This means that for employees who increase their DCFSA set-aside to $7,500, a company will save almost an additional $200 per employee. For a company with average participation in this program and a workforce of 20,000, the savings would be approximately $230,000 annually.
We would welcome support of the bill; it’s always helpful when local representatives are asked for their support by their constituents. The ABC, WFD, and CVWF believe that the DCFSA program is an excellent example of how companies and organizations—large or small—can support their employees and their families. To download a guide to promote the use of DCFSAs, visit http://www.abcdependentcare.com/docs/pubs.shtml.
For more information on dependent care tax assistance, please see the Network’s Topic Page on this subject.
I wholeheartedly applaud this effort, although in expensive northeast cities (Boston, NY), a year’s worth of child care at an accredited agency or center costs significantly more than $7,500. Heck, the after school care provided my public school for my children in kindergarten was more than $7,500. But it is time that companies and congress got in step with the real costs of child care. What I like about this article is that it speaks to the benefits to the companies, not just the employees.
Childcare is a great benefit to working parents. We should do all we can to help workers by improving benefits such as these
This is a win/win and a great benefit to an employee and their family. It is more needed now than ever as the days of stay at home parents are a rare exception. Thanks for the call out on support for this bill! Mags @ Child Safety Advocate.