Dependent care FSAs: Policy proposals to level the playing field for low- to moderate-income parents

This research was funded by the Annie E. Casey Foundation. We thank them for their support but acknowledge that the findings and conclusions presented in this report are those of the authors alone, and do not necessarily reflect the opinions of the Foundation.The authors are grateful to Don Baylor at the Annie E. Casey Foundation for his guidance and support throughout the project. We are also grateful to Elaine Maag at the Urban Institute for offering her expertise related to interactions between the Earned Income Tax Credit and dependent care flexible spending ac-counts. Finally, we extend our sincere thanks to Human Resource professionals at several private universities for generously sharing their knowledge and insights.In this two-part series, we provide a field scan of the dependent care flexible spending accounts (DCFSAs) landscape, focusing on child care expenses. We describe the proliferation and utilization of these programs, identify barriers to usage by low- to moderate-income (LMI) parents (those with household incomes at or below Area Median Income as defined by the U.S. Department of Housing and Urban Development, ~$50,000 per year), and explain features of DCFSA design and program administration that address some of these challenges. We also identify opportunities for improvements in public policies and employer practices that can level the DCFSA playing field for LMI employees.Part 1 defines dependent care flexible spending accounts and outlines the process through which employees may obtain reimbursement, the benefits that employers may experience by offering DCFSAs, patterns of adoption of such plans by employers and employees, and employee decision-making regarding plan participation.In Part 2, we describe features of DCFSA design and program administration that address some of the challenges and provide a set of policy proposals for consideration by both employers and policymakers.

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Project: Workforce Financial Stability Initiative