By Allison Peck
WASHINGTON — U.S. Representative Adrian Smith of Nebraska has introduced bipartisan legislation intended to help small businesses offer child care-related benefits to their employees.
Smith, along with Danny K. Davis of Illinois and Nathaniel Moran of Texas, introduced the Small Business Dependent Care FSA Opportunity Act in the United States House of Representatives during the 119th Congress.
The bill would amend the Internal Revenue Code of 1986 to create a federal tax credit for certain small employers that establish dependent care flexible spending accounts, or DCFSAs, for their workers.
DCFSAs allow employees to set aside pre-tax income to pay for eligible dependent care expenses such as daycare and after-school programs. Supporters of the legislation say startup and administrative costs often prevent smaller companies from offering the benefit.
According to information released with the bill, about 29% of employees at businesses with fewer than 100 workers currently have access to a dependent care flexible spending account, compared with roughly 63% of employees at larger companies.
Under the proposal, eligible small businesses could claim a tax credit to help cover the startup and administrative costs associated with creating and maintaining a dependent care FSA plan. The credit would also apply to expenses related to educating employees about the benefit.
The legislation would provide a credit of up to $250 per non–highly compensated employee who is eligible to participate in the plan. The credit would have a minimum value of $500 and a maximum of $5,000 per year, and employers could claim it for the first three years after establishing the benefit.
Smith said the measure is designed to help small businesses remain competitive when recruiting and retaining workers while helping families manage child care expenses.
“The startup and administrative costs make providing competitive benefits challenging,” Smith said. “Our bipartisan bill will empower small businesses to offer DCFSAs, easing the financial burden of child care for working families while helping these businesses remain competitive in today’s hiring landscape.”
Davis said tax policy can play a role in addressing rising child care costs for families.
“The tax code is an important part of a comprehensive federal effort to help families struggling with the high cost of child care,” Davis said. “This change will work together with essential child care grants and child care tax credits to give a tax break to families to help them thrive.”
Moran said the bill aims to support both small businesses and working families.
“When we can get government out of the way and encourage small businesses to support their employees, we help ensure that hardworking Americans can keep their jobs while raising a family,” Moran said.
The bill has been referred to a committee in the House for consideration. If enacted, the tax credit would apply to eligible expenses paid or incurred after the law takes effect.
Click here to see the full bill.