I work for a very small company (only 2 other employees) that pays well but offers no benefits. I'd really like my employer to offer me a Dependent Care FSA. I'm sure he'd agree as long as it 1) doesn't cost him much (or anything) and 2) doesn't create a hassle for him or the person who handles payroll.

The benefits management companies I've looked into look like overkill, and most of them require a minimum # of employees to participate. Does anyone have experience with handling it internally? I know companies can choose to do it without an administrator, but I'm having trouble figuring out exactly what it would look like on the payroll side. I'd like to have more information before I make my case.

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    "I know companies can choose to do it without an administrator" - are you sure? I know companies can administer an FSA internally, but I thought an Administrator must still be named (even if that Administrator is a company employee)? – Joe Strazzere Mar 28 '17 at 19:13
  • You're right--I didn't phrase that well. I meant a 3rd party benefits management company. – firstmute Mar 28 '17 at 20:03
  • If your husband's cafeteria plan already included $5k for dependent care, that's it for the year. Spouses are limited to $5k total per year. – mkennedy Mar 28 '17 at 20:19
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    2500 combined medical and dependent care. We've already used it all for medical, thanks to some unexpected expenses! – firstmute Mar 28 '17 at 20:32

Well you've got to think about the process, but first make sure the thing you want to pay for is actually a qualified dependent care expense. Here is a list of eligible expenses from a national FSA administrator.

  • You enroll in a $200 per month dependent care FSA election. (or whatever)
  • You send your kid to non-educational daycare it costs $200 per month.
  • Assuming semi-monthly payroll, your payroll person removes $100 from each paycheck to a pot of dependent care funds.
  • You receive a $200 invoice from the daycare.
  • You submit that invoice with some sort of form to the person doing the admin.
  • That person approves your expense then issues a reimbursement payment.

This process will tie up your money for some amount of time. Your deduction will come out like clockwork. But there is a time-delay of potentially months between your deduction and receipt of a reimbursement.

Dependent care plans are money-in money-out. You can only file a reimbursement on funds that have actually been contributed, which is different than a medical FSA. Additionally, you can only file a claim on expenses that have actually been incurred. Dependent care FSA elections can be changed through the year on an as needed basis. This would add an administrivia burden to the person running your payroll, and if there is a payroll vendor in place, likely an actual cost.

The administrator in this situation would likely be the company. In the formalities of employee benefits there must always be a named administrator.

If your employer currently offers no benefits you should press healthcare first. Paying healthcare premiums pretax would likely save you more money and be less administration than this. Additionally, if your employer is paying for or reimbursing you for your individual health insurance that's currently illegal under the ACA.

  • Thanks for this thorough reply! We have healthcare through my husband's work, as well as a cafeteria plan that we've already used up. Our total childcare costs (daycare and eligible summer camp) come out to about $12000 a year right now, so a dependent care account would really help with that. Our spending rate is several thousand/ mo lower than income, so we could float the paycheck deduction. If I'm understanding your response correctly, offering an FSA would add a small admin burden to payroll. I think my employer would be okay with that. Thanks again for the reply! – firstmute Mar 28 '17 at 19:57
  • We file separately (student loan reason), so from my understanding we're each eligible for the current IRS individual max of 2500 (which is what his employer offers). – firstmute Mar 29 '17 at 1:13

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