Small Business Dependent Care FSA Opportunity Act
Summary
What This Bill Does
The Small Business Dependent Care FSA Opportunity Act creates a general business tax credit for an eligible small employer's ordinary and necessary costs of establishing or administering a new dependent-care flexible spending plan and educating employees about it. The credit equals qualified startup costs, subject to an annual limit, for the first credit year and the next two taxable years; it is zero thereafter.
For each of the three credit years, the maximum is the greater of $500 or the lesser of $250 for each eligible employee who is not highly compensated or $5,000. The employer may elect to treat the taxable year before the plan becomes effective as the first credit year.
The employer must satisfy the small-employer definition cross-referenced in the Internal Revenue Code. Neither the employer, a controlled-group member, nor a predecessor may have maintained a dependent-care FSA for substantially the same employees during the prior three taxable years. Qualified expenses are unavailable unless at least one non-highly compensated employee is eligible to participate. Employer contributions must qualify for exclusion from employee income under section 129. The credit applies to qualifying costs paid or incurred after enactment in taxable years ending after enactment.
Who Benefits and How
Eligible small employers receive a tax credit that offsets plan setup, administration, and employee-education costs for three years. Non-highly compensated employees gain access to employer-sponsored dependent-care accounts, and the employee count can increase the employer's credit cap. Working parents may lower eligible dependent-care costs through pre-tax contributions. Benefit administrators, payroll providers, tax advisers, and employee-education vendors may gain new small-employer business.
Who Bears the Burden and How
Employers must document small-employer status, prior-plan history across controlled groups and predecessors, eligible employees, qualified expenses, and section 129 compliance. Employers that recently maintained a substantially similar plan receive no startup credit. Plans without a participating non-highly compensated employee are excluded. IRS business-credit staff must issue guidance and verify three-year limits and controlled-group rules. Federal business-tax accounts bear the revenue cost.
Key Provisions
- Creates a general business credit for dependent-care FSA startup costs.
- Covers plan establishment, administration, and employee-education expenses.
- Provides the credit for the first year and two following taxable years.
- Sets an annual minimum cap of $500 and a maximum cap of $5,000.
- Uses eligible non-highly compensated employees to calculate the variable cap.
- Excludes employers with substantially similar plans during the prior three years.
- Requires at least one eligible non-highly compensated participant.
- Applies to qualifying post-enactment costs.
Evidence Chain:
This summary is generated from the full bill text using AI analysis. Expand "Detailed Analysis" below for identified beneficiaries/burden bearers with clause-level evidence links.
At a Glance
What This Bill Does
Creates a three-year general business tax credit reimbursing eligible small employers for startup and employee-education costs of a new dependent-care flexible spending plan, with an annual credit between $500 and $5,000 based partly on eligible non-highly compensated employees.
Key Policy Areas
Small Business Tax Credits, Dependent Care Benefits, Flexible Spending Arrangements, Employee Benefits, Caregiving Workforce Support
Primary Purpose
Creates a three-year general business tax credit reimbursing eligible small employers for startup and employee-education costs of a new dependent-care flexible spending plan, with an annual credit between $500 and $5,000 based partly on eligible non-highly compensated employees.
Policy Domains
Section 2 dependent-care FSA startup credit
Identified Gains
- Eligible small employers launching dependent-care plans
- Non-highly compensated employees
- Working parents using dependent-care accounts
- Employee-benefit administration firms
- Payroll providers serving small employers
- Tax advisers serving small employers
- Employee-benefit education vendors
Identified Costs
- Small employers documenting startup costs
- Controlled-group tax-compliance staff
- Employers with recently established care plans
- Plans lacking eligible non-highly compensated employees
- IRS general-business-credit administrators
- Federal business-income-tax accounts
Sponsors
Legislative Progress
In CommitteeReferred to the House Committee on Ways and Means.
Introduced in House
Mr. Smith of Nebraska (for himself, Mr. Davis of Illinois, …
Stakeholder Effects
cui bono?How this legislation distributes effects. Mention counts reflect frequency, not effect magnitude.
Eligible small employers launching dependent-care plans, Employers with recently established care plans, Small employers documenting startup costs
Positive-direction: Eligible small employers launching dependent-care plans
Negative-direction: Employers with recently established care plans
Employee-benefit administration firms, Payroll providers serving small employers, Tax advisers serving small employers
Non-highly compensated employees, Working parents using dependent-care accounts
Federal business-income-tax accounts, IRS general-business-credit administrators
Plans lacking eligible non-highly compensated employees
Bill Structure & Actor Mappings
Who is "The Secretary" in each section?
- "vendor"
- → Benefits or payroll provider supporting the plan
- "claimant"
- → Eligible small employer establishing a new dependent-care FSA
- "employee"
- → Eligible employee who is not highly compensated
- "administrator"
- → Internal Revenue Service
Note: {'scope_ids': ['small_employer_dependent_care_credit'], 'description': 'The credit reimburses qualified startup costs but is limited annually to the greater of $500 or a variable employee-based amount capped at $5,000 and ends after three credit years.'}
Key Definitions
Terms defined in this bill
The taxable year containing the plan's effective date or, at the employer's election, the preceding taxable year.
The portion of an employer plan consisting of dependent-care flexible spending arrangements whose employer contributions are excludable under section 129.
Ordinary and necessary expenses to establish or administer a dependent-care FSA or educate employees, provided the plan has at least one eligible non-highly compensated employee.
We use a combination of our own taxonomy and classification in addition to large language models to assess meaning and potential beneficiaries. High confidence means strong textual evidence. Always verify with the original bill text.
Learn more about our methodology