A Dependent Care Assistance Plan (DCAP), commonly called a dependent care FSA, lets a Florida small business offer employees up to $5,000 per year in pre-tax salary reductions for childcare, after-school care, day camp, and adult dependent care expenses. Both the employee and employer save 7.65% FICA on every dollar that runs through the account. Setup is typically free or very low cost when added to an existing Section 125 plan, and the employer FICA savings can completely offset the per-employee admin fee in groups of 10 or more.
| Filing Status | Annual Limit |
|---|---|
| Married filing jointly OR single head of household | $5,000 |
| Married filing separately | $2,500 |
The limit is per household, not per employee. If both spouses have access to a DCAP, they combine for one $5,000 cap.
Excluded: overnight camps, kindergarten tuition, school tuition for K-12, evening babysitting unrelated to work.
10 employees each electing the maximum $5,000 = $50,000 of pre-tax salary reductions:
If the DCAP admin fee is $4/employee/month = $480/year for 10 employees, the FICA savings still net the employer ~$3,345.
DCAPs are subject to a 55% average-benefits test: highly compensated employees cannot receive more than 55% of total benefits paid. Most small Florida businesses pass easily because participation is broad. The test is at year-end. Failed tests result in HCEs being taxed on excess benefits.
Employees cannot double-dip: expenses paid through a DCAP cannot also be claimed for the federal Child and Dependent Care Credit (Form 2441). For most middle-income Florida families, the DCAP is more tax-efficient than the credit because the DCAP saves both income tax AND FICA, while the credit only reduces income tax. Higher-income families with limited credit benefit usually prefer the DCAP.
Use-it-or-lose-it applies. Unspent funds are forfeited at the end of the plan year (or grace period if elected). Some Florida employers add a 2½-month grace period to give employees more time to spend. The forfeited funds remain in the plan and offset future admin costs or are returned to the employer.
No — a DCAP is one component of a Section 125 cafeteria plan. The Section 125 plan document must include the DCAP terms. If you don't already have a Section 125 plan (premium-only plan or full FSA), you'll need to establish one first.
Sole proprietors, partners, and >2% S-corp shareholders are excluded from cafeteria plans and therefore cannot participate in a DCAP. C-corp owner-employees can participate like any other employee. Owners outside C-corp may use the Form 2441 dependent care credit instead.
A licensed Florida broker can amend your Section 125 plan to include a DCAP at minimal cost.
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