Military Families Get More Flexibility in Paying for Dependent Care

In collaboration with the U.S. Office of Personnel Management (OPM), the U.S. Department of Defense (DoD) has broadened the scope of eligibility for a beneficial program aimed at providing financial relief to military families for dependent care.

The initiative, known as the Dependent Care Flexible Spending Account (DCFSA), offers eligible service members the opportunity to allocate up to $5,000 per household in pretax earnings for qualified dependent care expenses. These expenses encompass child care, preschool, before- and after-school programs for dependents under 13 years of age, care for incapacitated family members of any age, and other eligible dependent care costs that facilitate service members and spouses in pursuing full-time work, job searches, or attending school.

Deputy Under Secretary of Defense for Personnel and Readiness, Ashish Vazirani, emphasized the significance of introducing the DCFSA for military families as a crucial step in the DoD’s commitment to supporting its personnel. He highlighted the program’s role in aiding families with the costs of caring for their loved ones while actively pursuing career goals, contributing to the economic well-being of families and maintaining a mission-ready force.

Key Benefits of DCFSA:

1. Tax Savings: Participants in the dependent care flexible spending account benefit from tax savings, as contributions are deducted pretax. This results in reduced federal income tax, state income tax (in most states), and exemption from Social Security and Medicare taxes.
2. Greater Affordability: Dependent care services can be financially burdensome, but the DCFSA allows individuals to allocate pretax dollars, effectively lowering out-of-pocket costs for services like daycare, preschool, and after-school care.
3. Convenience: Contributions to the DCFSA are automatically deducted from a service member’s paycheck before taxes, providing a convenient way to set aside funds for dependent care expenses. This allows families to plan and budget for these expenses by contributing a specific amount each pay period.

The DoD estimates that around 400,000 active component service members and members of the Active Guard Reserve on Title 10 orders have eligible dependents qualifying for this benefit. Moreover, this benefit is already accessible to DoD civilians. Recognizing the importance of dependent care for military readiness, the program ensures that service members and DoD civilians can focus on their duties with the assurance that their loved ones are receiving quality care.

OPM Director Kiran Ahuja expressed support for the Defense Department’s initiative, stating that OPM welcomes the opportunity to extend the eligibility of DCFSAs, under the Federal Flexible Spending Account Program, to military personnel starting January 1, 2024. The enrollment period for DoD service members to enroll in a DCFSA is during the annual Federal Open Season from mid-November through mid-December. OPM will announce specific enrollment dates. To assist service members and families in making informed decisions, DoD has developed educational materials, and individuals are encouraged to seek guidance from tax consultants and financial readiness professionals. Tax and financial readiness consultations are available for free through Military OneSource and the DoD Office of Financial Readiness.