Dependent care flexible spending accounts, which help defray the cost of child care by providing tax savings, are coming for active duty service members.
The new benefit is one of six measures announced Wednesday by defense officials to address some needs in parental leave, child care, education and career advancement for military spouses.
The memorandum, signed by Secretary of Defense Lloyd Austin, also expands eligibility for the popular My Career Advancement Account (MyCAA) financial assistance program, to include spouses of service members in paygrades E-6 and O-3. Until now, the program, which provides up to $4,000 for obtaining a professional license, certificate or associate degree, was available to spouses of troops in paygrades E-1 to E-5, W-1 and W-2, and O-1 and O-2.
Austin is also requiring improvements to the Exceptional Family Member Program within 90 days.
Flexible spending accounts
The dependent care flexible spending accounts will allow service members to set aside up to $5,000 in pretax income, through payroll deductions, for eligible dependent care expenses. Defense working groups are in the process of developing procedures to implement those accounts, said Susan Mitchell, tax counsel for the Department of Defense and executive director of the Armed Forces Tax Council.
Officials hope to implement these accounts for service members by this year’s open season, which will start in mid-November. If it’s not ready by then, there will be a special enrollment period so service members can sign up to contribute in the 2024 tax year, Mitchell said.
The most recent DoD survey of active duty spouses found that 38% of all them who have children at home routinely use child care.
Federal government employees, including DoD civilians, already have access to dependent care flexible spending accounts as do a number of private-sector employees. According to the Bureau of Labor Statistics, 43% of civilian workers had access to these accounts in 2021.
A number of military family advocates have been asking for this benefit to help reduce the net cost of child care for military families, many of whom have long faced difficulties finding affordable, quality child care. The pandemic exacerbated the problem and has had lasting effects on availability.
“We are doing back flips here,” said Kelly Hruska, government relations director for the National Military Family Association. “This is a benefit every DoD civilian has access to.”
The association, she said, has been asking for this benefit for military families for well over a decade.
A dependent care flexible spending account can be used to pay not only for home and child center care, but also preschool, summer day camp, before and after school programs for children up to age 13, and for adult daycare, according to Internal Revenue Service regulations. The funds are deducted from the service member’s gross pay and deposited into the account before taxes are calculated. Child care bills are then paid with those funds. The end result is a lower tax bill.
Married service members with one child, who have eligible child care expenses, could receive a tax benefit by contributing $5,000 to a dependent care flexible spending account, according to a recent report from Rand, the federally funded think tank. For these members, the tax decrease ranges from $382.50 to $1,382.50, depending on their overall income, the report stated.
According to a 2021 DoD demographics report, 35% of active duty members have children. Of those, nearly 42% have at least one child age 5 or younger. Another 33% have at least one child in the 6 to 11 age group.
The decision about whether to take advantage of this benefit will be up to parents, Hruska noted, but military personal financial counselors should be available to help them work through those decisions.
In addition to these new accounts and expanded eligibility for MyCAA, Austin’s memo announced:
♦ Improvements to the Exceptional Family Member Program. Within 90 days, the department expects to establish a standard process for enrolling and disenrolling families, a move to ensure that family members with special needs have access to the care, support and expertise they need. Support personnel will be required to make personal contact with each enrolled family at least once a year, and to better coordinate the available support. Service officials will be required to enhance oversight and evaluation, and submit quarterly data to measure performance and program effectiveness.
Military OneSource will assign a single specialty consultant to each family to provide better continuity of support, complementing the services provided at military installations.
♦ Universal prekindergarten at Department of Defense Education Activity schools. This proposal is dependent on funding from Congress, If lawmakers approve, it would be phased in over five years. DoD has requested more than $90 million in its fiscal 2024 budget for this purpose. Research shows that children who go to preschool are nearly 50% more likely to finish high school and go on to higher education, defense officials have noted.
♦ Professional license portability. Austin noted that President Joe Biden on Jan. 5 signed into law a requirement that professional licenses, except those to practice law, be portable for service members and spouses as they move between states. It marked the first time a federal law has addressed the problems military spouses face trying to obtaining meaningful employment and continue their careers.
“The Department is committed to robust communication with service members and their spouses to ensure there is broad awareness of the new law and will also continue to work with the states to promote the sharing of licensure best practices and the approval of occupational licensure compacts,” the memo stated.
♦ Promoting new parental leave benefits. DoD has issued new policies to provide 12 weeks of paid parental leave to service members after the birth or adoption of a child, or long-term foster-care placement. Now, Austin is directing DoD public affairs officials to immediately launch a “messaging campaign to publicize the important new benefit now available under the Military Parental Leave Program.”
Karen has covered military families, quality of life and consumer issues for Military Times for more than 30 years, and is co-author of a chapter on media coverage of military families in the book "A Battle Plan for Supporting Military Families." She previously worked for newspapers in Guam, Norfolk, Jacksonville, Fla., and Athens, Ga.