Increase Dependent Care FSA

Economy
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The dependent care FSA tax credit needs to be increased as it has remained the same since 1986. Read below. Copy and paste below credit to new front.com

Short Answer: Congress set the $5,000 dependent care FSA contribution limit in 1986 without indexing it to inflation, and therefore only an act of Congress can increase the limit.

Dependent Care FSA: General Rule

Employees can contribute up to $5,000 to the dependent care FSA each calendar year. The limit is reduced to $2,500 for married individuals filing separately.

The dependent care FSA reimburses employment-related dependent care expenses for children under age 13 and other qualifying disabled individuals.

The exclusive benefit offered by the dependent care FSA is tax savings. Contributions are pre-tax and avoid both the employer and employee-share of FICA payroll taxes.

Contribution Limit Not Indexed to Inflation

Unfortunately, Congress did not index the $5,000 dependent care FSA contribution to inflation when it established the cap in 1986. Internal Revenue Code §129 simply fixes the contribution limit at $5,000 per calendar year. Only an act of Congress can modify that $5,000 statutory limit.

As a result, the dependent care FSA limit has remained constant at $5,000 for over 34 years running.

Hypothetical World: What if Congress Had Indexed the Dependent Care FSA Limit to Inflation?

Using the Bureau of Labor Statistics’ standard CPI inflation calculator, $5,000 in 1986 is roughly the equivalent of $11,750 in 2020. That would roughly match the current national average cost of daycare.

The Economic Policy Institute has a 50-state survey reviewing the average annual cost of child care. The average annual infant care costs range from roughly $5,500 (Mississippi) to roughly $24,000 (Washington D.C.). California’s average cost is roughly $17,000 for an infant, roughly $11,500 for a four-year-old.

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I agree this needs to be increased drastically ! I want to add that this is a benefit that WORKING families can take advantage of.
I think that the dependent care credit should also be expanded , some wish to not take advantage of the FSA or do not have the option to. It should be per kid and not maxed out. Perhaps a larger amount for kids 8 and under or perhaps not.

I disagree with credits that increase the child tax credit and especially the refundable portion of the child tax credit. Families should be rewarded for working and the expense they have to pay for that. I don’t like seeing the child tax credits increase the refundable portion (some is okay, all is not) as to some respect I think it encourages non contributing members of society to reproduce.

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I agree that there needs to be indexing due to inflation, and I also believe price indexes could be set by zip codes for greater flexibility in higher cost areas. A family member (grandparents, for example) should be eligible to receive FSA payments, as many families have extended families who babysit for them, and it limits their ability to have outside employment as well. Additionally, it would seem important to have an Elder-Care FSA - I work with the elderly and disabled, and there needs to be a way to provide in-home care for that population. I see way too many frail elderly people who are unable to care for their spouse, or get any relief when their spouse is ailing. Outside agencies for the care of the elderly and disabled would spring up if people could afford it. Extended family and charitable organizations could also be allowed to contribute to an Elder-Care FSA and get a tax deduction for a charitable contribution.

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The Dependent Care FSA / pre-tax eligiblity for childcare dollars should be MODIFIED (not just increased) so that it does NOT require both parents in the household to be employed. This tax benefit is currently too restrictive on who qualifies, and so long as one parent in the household is wage earning, the family should be allowed to take the tax benefit.

As a parent to a special needs child, the most effective outcomes for our child require one parent to be full-time dedicated to gaining developmental, age appropriate skills while our child is young. This precludes one of us from a wage earning job and we are ineligible for pre-tax child care dollars simply because our child’s disability ranks as a higher priority. The benefit could be phased out on a sliding income scale, if there is concern that only one parent is working. But as of now it severely penalizes special needs families who have no other options.