Dependent care flexible spending accounts are one of six measures announced recently by defense officials to address some needs in parental leave, childcare, education and career advancement for military spouses. Tax-savings benefits for families of service members are a wonderful way to help those families, according to Rudy Beck, of Beck & Lenox Estate Planning and Elder Law.
Military Times’ recent article entitled, “DoD to offer tax-saving child care accounts, other benefits for troops,” reports that the memorandum, signed by Secretary of Defense Lloyd Austin, also expands eligibility for the popular My Career Advancement Account (MyCAA) financial assistance program, to include spouses of service members in paygrades E-6 and O-3. The program, which provides up to $4,000 for obtaining a professional license, certificate, or associate degree, was available to spouses of troops in pay grades E-1 to E-5, W-1 and W-2, and O-1 and O-2 only. In addition, Secretary Austin also requires improvements to the Exceptional Family Member Program within 90 days.
The dependent care flexible spending accounts will let service members earmark up to $5,000 in pretax income, through payroll deductions, for eligible dependent care expenses. Officials hope to implement these accounts for service members by this year’s open season, which begins in mid-November.
A recent DoD survey of active-duty spouses found that 38% of those with children at home routinely use childcare.
According to Internal Revenue Service regulations, a dependent care flexible spending account can be used to pay for home and child center care, preschool, summer day camp, before and after school programs for children up to age 13 and adult day care. The money is deducted from the service member’s gross pay and deposited into the account before taxes are calculated. Childcare bills are then paid with those funds. The end result is a lower tax bill.
In addition, married service members with one child with eligible childcare expenses could get a tax benefit by contributing $5,000 to a dependent care flexible spending account. For them, the tax decrease ranges from $382.50 to $1,382.50, depending on their overall income. A 2021 DoD demographics report shows that 35% of active-duty members have children. Of those, nearly 42% have at least one child, five or younger. Another 33% have at least one child in the six to 11 age group.
In addition to these new accounts and expanded eligibility for MyCAA, Austin’s memo announced improvements to the Exceptional Family Member Program, universal prekindergarten at Department of Defense Education Activity schools and professional license portability. Every little bit helps, says Beck & Lenox!
Reference: Military Times (March 22, 2023) “DoD to offer tax-saving child care accounts, other benefits for troops”