What are the benefits to employers who encourage pre-tax employee contributions to daycares?

Answer 1

There is a tax break for the employees as well as the Company. Plus it is a "good" benefit will little cost.

Answer 2

A salary reduction agreement for dependent care benefits reduces not only the income taxes paid by the employee, but there are no Social Security or Medicare taxes on that money as well.

The employer will not have to pay the employer's share of Social Security and Medicare taxes on the amount of the salary reduction. For each employee who takes a $5,000 salary reduction, the employer saves almost $400 in payroll taxes.

Answer 3

It's a minimal cost benefit that employers can offer. Their only costs are the costs of administering the cafe accounts. These can be offset in part or in full by putting the funds in an interest-bearing account.

There is one benefit that most don't think about, though. Any funds remaining in the account at the end of the year (I believe that it can carry past the end of the year until February) are forfeit to the employer. For this reason it's important that you plan carefully so that the account is zeroed out at the end of the year.