Using a Cafeteria Plan to Pay For Qualified Dependent Care Expenses

You may establish a tax-free account to pay foralso save another $383 in payroll taxes, for a total
qualified dependent care expenses if your employertax savings of $1633. Your employer then saves their
participates in a cafeteria plan (also known as a$383 of the payroll tax figure.
flexible spending plan or a 125 Plan).Along with dependent care reimbursement accounts,
These accounts are known as dependent caresome employers offer paid assistance for child
reimbursement accounts. You make deposits byadoptions.
authorizing your employer to make deductions fromThere may be a time when you need to take a
your pretax salary and deposit these amounts intoleave of absence from your place of employment in
your reimbursement account. Throughout the year,order to care for a child or other dependent. The
you use these deposits to pay for qualifiedFamily and Medical Leave Act requires that an
dependent care. The amount is generally capped atemployer allow twelve weeks for you to leave in
$5000 annually.order to care for a family member, newborn, foster,
Your contributions to a flexible dependent careor adopted child.
program lower your income and, therefore, your taxMost employers offer some sort of dependent child
liability. Your employer also lowers their share of thecare provisions for employees like providing a day
payroll taxes on the contributions you make, sincecare center, hiring a child care service, or even
you pay no payroll tax on this income.operating their own day care facility. Other employers
So, if you were to fund a dependent account withoffer dependent care services through highly flexible
$5000 and you are in the 25% income tax bracket,schedules that allow their employees time to care for
your potential savings on income tax is $1250. Youchildren, spouses, or aging parents.