BASE^® Blog

In 2019, only 42% of workers had access to dependent care assistance.  For many Americans, the cost of daycare, supervision for an aging parent, or care of an incapable spouse is a significant monthly expense.  Let BASE® help turn your employee’s dependent care expenses into tax savings!

The BASE® Dependent Care Assistance Plan (DCAP), a fringe health care benefit that allows employees to pay for their employment-related dependent care expenses on a pre-tax basis.  When an employer sponsors a DCAP, employees can elect up to the government established limit of $5,000, having it deducted pre-tax from their paychecks helps to reduce the amount of income subject to taxes.

Under the DCAP, the money set aside on a pre-tax basis can be used for a child/children under the age of 13, a dependent such as a parent, spouse, or sibling incapable of self-care, or disabled dependent that receives care outside the home.

Qualifying expenses for the DCAP are outlined below:

• Daycare, preschool, and pre-kindergarten expenses
• Before and after school care
• Adult and elderly care programs

The biggest benefit to both the employer and employee is the tax savings.  The employee can continue to work and have the peace of mind knowing they are establishing funds to help pay for the cost of their dependent care expenses, and see an increase in their take-home pay by saving on Federal, State, Social Security, and Medicare taxes.

Employees can save 25-40% in taxes for every dollar they elect.  Check out the example below on how an employee could turn their dependent care expenses into tax savings >>>

DEPENDENT CARE TAX SAVINGS

Based on $5,000 election & 27% tax rate (22% Federal & 5% State)

Monthly Tax Savings:  $112.50

Annual Tax Savings:  $1,350.00

Want to find out what you could be saving?  Check out the BASE® 125 Cafeteria Plan Tax Savings Calculator!

With the addition of this 125 Cafeteria Plan, the employer can offer an enhanced benefits package that will help with recruitment and retention of employees, and reduce the employer’s share of payroll taxes by allowing their employees to elect pre-tax contribution for their dependent care.

No matter the eligible dependent care expense, the BASE® 125 Cafeteria Plan provides additional financial assistance to allow employees to take care of their family with pre-tax dollars, helping to stretch their hard-earned dollars.  Employers can save valuable tax dollars while providing a service to help their employees pay for their dependent care.  Click here to read more about the BASE® DCAP or call 888.386.9680. 

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There is a good chance many employers and employees are familiar with the Flexible Spending Accounts (FSAs).  FSA plans allow the employee to set aside pre-tax money to pay for a wide variety of qualified health care expenses but are disqualified from being enrolled due to their enrollment in a Health Savings Account (HSA).  What they don’t know is that when combining an HSA with an FSA option, an employer is giving their employee an account combination that will help them maximize their tax savings on health care expenses – the little-known option with a great savings potential – the Limited Purpose FSA.

The BASE® Limited Purpose Flexible Spending Account is a form of Flexible Spending Account (FSA) that is strictly used for reimbursing eligible dental and vision expenses.  This type of plan is for employees who are enrolled in a High Deductible Health Plan (HDHP) with a funded Health Savings Account (HSA).  Qualified expenses under the Limited Purpose FSA are dental and vision deductibles and copays, vision exams and screening tests, eyeglasses and contacts, dental x-rays, orthodontia work, and much more.

The Limited Purpose FSA can only be used for dental and vision expenses but can still provide both the employer and employees with a significant tax advantage without having to give up on the benefits of an FSA when an HSA is involved.  For 2021, the annual maximum election limit is $2,750.

To the EMPLOYER…

Ability to Expand Benefits Package.  Employers can use this account to maximize savings and tax benefits for their business and employees.  With the Limited Purpose FSA paired with the HSA, an employer can expand benefits to include both.

Financial Benefits.  When the employee elects to make a pre-tax contribution for the dental and vision expenses, the employer’s share of FICA and FUTA taxes are reduced.

To the EMPLOYEE…

Increased Take-Home Pay.  The funds are transferred on a pre-tax basis, so employees save on Federal, State, Social Security, and Medicare taxes.

Increased Benefit Savings.  The Limited Purpose FSA covers qualified out-of-pocket expenses for dental and vision.  By utilizing this type of FSA, employees can save more money in their HSA for other qualified medical expenses or save for the future.  It allows employees to use their pre-tax dollars to pay for their qualified dental and vision expenses while allowing them to continue to save money in their HSA.

An employee can save up to 30% paying for their dental and vision expenses with a Limited Purpose FSA versus with after-tax funds.*  One big thing to remember:  There is no double dipping allowed.  An employee cannot be reimbursed for dental and vision expenses through the Limited Purpose FSA AND their HSA.

Limited Purpose FSAs are a great way to take advantage of having pre-tax money to pay for out-of-pocket dental and vision expenses while growing your HSA account for the future.  Click here to read more about the BASE® Limited Purpose Flexible Spending Account or call 888.386.9680.

* Depending upon your tax bracket.

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