Smart Benefits to Support Your Company's Caregivers

Rising caregiving costs are putting serious pressure on the modern workforce. Your employees are likely feeling the squeeze of juggling a full-time job while paying for day care, summer camps, or assistance for elderly relatives.

As a business leader, you have a unique opportunity to step in and offer meaningful support. By implementing targeted benefits like dependent care flexible spending accounts (FSAs) and employer-provided child care, you can ease the financial burden on your team. These offerings do more than just build goodwill. They actively boost productivity, improve employee retention, and provide your company with highly favorable tax advantages.

Let's break down how you can leverage these programs to support your workers while optimizing your bottom line.

How Dependent Care FSAs Work

A dependent care FSA allows your employees to pay for eligible caregiving expenses using pretax dollars. To offer this, your business needs to set up a dependent care assistance program (DCAP).

Workers can opt into the program during open enrollment or after a qualifying life event. Once enrolled, they defer a portion of their compensation into the FSA before taxes are applied. The current annual contribution limits are $7,500 for married couples filing jointly, single filers, and heads of households. For married individuals filing separately, the limit is $3,750.

Employees can use these funds to cover a wide variety of necessary services:

• Traditional day care and preschool
• Before- and after-school programs
• Summer day camps
• Care for dependent adults who cannot care for themselves

The main requirement is that these expenses must directly enable the employee (and their spouse, if applicable) to work or actively seek employment.

The Financial Upside for Employers

Offering a dependent care FSA is a highly effective way to attract and retain top talent. Beyond recruitment, these accounts offer direct financial benefits to your business.

Because employee contributions are made on a pretax basis, those funds are exempt from Social Security and Medicare taxes. This directly reduces your company's payroll tax burden. You can even choose to make employer contributions to these accounts to encourage participation, though the combined employer-employee contributions cannot exceed the standard $7,500 or $3,750 limits.

If you decide to set up a DCAP, clear communication is critical. You must educate your staff on the "use-it-or-lose-it" rule, meaning any unused funds at the end of the year generally revert to the employer. You also need to remind them that these accounts are not portable. If an employee leaves your company, they leave their FSA balance behind.

Going Bigger: Employer-Provided Child Care

Perhaps you want to make a larger commitment to your workforce by providing child care directly. You might set up a day care facility right in your building, or contract with a licensed child care center nearby.

While the upfront costs of this approach are higher, the resulting tax incentives are substantial. Looking ahead to 2026, employers may be able to claim a tax credit equal to 40% of qualified child care expenses, plus 10% of qualified resource and referral expenditures, capped at $500,000.

For eligible small businesses, the incentives are even stronger. The credit jumps to 50% of qualified expenses, with a maximum cap of $600,000. To qualify for on-site care credits, at least 30% of the enrolled children must be dependents of your employees.

Ready to Upgrade Your Employee Benefits?

Building a competitive benefits package requires careful planning. Before you roll out a new DCAP or invest in an on-site facility, it makes sense to distribute a quick survey to your workforce. This ensures you are putting resources into the exact benefits your team actually wants and needs.

At SD Mayer, we specialize in helping businesses design smart, cost-effective strategies. If you want to explore how these caregiving benefits fit into your broader financial picture, reach out to our team. We can review your current benefits lineup, advise on program administration, and help you make decisions that support both your employees and your long-term growth. Contact us today.