H.R. 7922: Small Business Dependent Care FSA Opportunity Act

This bill, titled the Small Business Dependent Care FSA Opportunity Act, proposes changes to the Internal Revenue Code that would allow small businesses to receive a tax credit for the startup costs associated with establishing dependent care flexible spending plans (FSAs).

Key Provisions of the Bill

• Eligibility for Credit: The bill defines an eligible employer as any small business that does not have a pre-existing dependent care flexible spending plan in place for the employees it wishes to cover. Employers must have at least one eligible participant who is not a highly compensated employee.
• Credit Amount: The tax credit can cover "qualified startup costs" that businesses incur in establishing these plans. The maximum credit amount is set as follows:
• For the first taxable year and each of the two subsequent taxable years, the credit will be the greater of:
  • $500, or
  • $250 for each eligible employee (not a highly compensated employee), with a maximum of $5,000.
• The credit available is zero for any years beyond this three-year frame.
• Qualified Expenses: The bill specifies that the "qualified startup costs" include ordinary and necessary expenses related to establishing or administering the dependent care FSA and educating employees about the plan.
• No prior plans: A business that has maintained a dependent care flexible spending plan for the same employees in the three years before applying for this credit will not be eligible for the credit.

Application and Effectiveness

The amendments proposed in this bill will apply to costs incurred after the bill is enacted and in taxable years following that enactment. The intent is to encourage small businesses to adopt dependent care benefits, which could enhance employee retention and satisfaction.

Relevant Companies