Participating in a dependent care assistance account is like receiving a 30% discount from your care provider. Child and dependent care is a large expense for many American families. Millions of people rely on child care to be able to work, while others are responsible for older parents or disabled family members. If you pay for care of dependents in order to work, you’ll want to take advantage of the savings this plan offers. Money contributed to a DCA is free from federal income, Social Security, and Medicare taxes and remains tax-free when it is spent.
The chart below illustrates potential savings at various contribution levels:
|Tax Status||DCA Contribution||Annual Savings*|
*For illustrative purposes only. Based on a typical tax situation of 15% federal tax, 7.65% FICA, and 5% state income tax. Your tax situation may be different. Consult a tax advisor.