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How Employers Can Support with Pre-Tax Benefits and Adoption Assistance 

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May is Foster Care Month, a time to recognize the invaluable contributions of foster parents, advocates, and organizations dedicated to supporting children and families in need. For employers, it’s an opportunity to not only celebrate but also take action in supporting foster care initiatives. One impactful way to do so is by offering adoption assistance programs and pre-tax benefits to employees who choose to foster or adopt. 

Why Foster Care and Adoption Support Matters 

Foster care and adoption can be life-changing experiences, not only for the children who find loving homes but also for the families who open their hearts and homes to them. However, the process can be emotionally and financially challenging. According to the U.S. Department of Health and Human Services, there are approximately 400,000 children in foster care in the United States. Providing support for foster care and adoption initiatives is crucial for ensuring these children have the opportunity to thrive in stable and loving environments. 

Flexible Spending Accounts for Foster Care and Adoption 

Flexible Spending Accounts (FSAs) are a flexible tool that you can offer to support employees during the foster care and adoption process. FSAs allow employees to contribute pre-tax dollars to an account that can be used to pay for eligible medical expenses, including eligible medical expenses related to foster care and adoption. This can include medical exams, counseling services, and other healthcare costs associated with the foster care or adoption process. 

Support Employees with Dependent Care Benefits 

Dependent care benefits are an additional helpful resource for employees who are fostering or adopting children, in addition to adoption assistance accounts. With the help of these benefits, employees can set aside pre-tax dollars to pay for qualifying child care expenses. You can help employees manage their work and family obligations by providing dependent care benefits, which not only support working parents but also lessen the financial burden of childcare. 

Adoption Assistance Accounts 

Adoption Assistance Accounts allow employees to set aside funds on a pre-tax basis to pay for adoption-related expenses. 

WHAT ARE ELIGIBLE ADOPTION-RELATED EXPENSES? 

Acceptable adoption-related expenses are defined in section 23(d)(1), which include: 

  • Reasonable and necessary adoption fees, 
  • Court costs and attorney fees, 
  • Traveling expenses (including amounts spent for meals and lodging while away from home), and 
  • Other expenses that are directly related to and for the principal purpose of the legal adoption of an eligible child. 

WHAT IS THE MAXIMUM AMOUNT THAT CAN BE SET ASIDE? 

Adoption assistance programs provided through an employer-sponsored plan allow employees to exclude up to a certain amount from their taxable income each year. This amount is adjusted for inflation each year. As an employee’s income increases, the amount that can be excluded from an employee’s annual earnings begins to phase out. 

Employees may also want to consider the Adoption Credit, which allows individuals to claim a tax credit. In some instances, it is possible to utilize both an adoption assistance account and the Adoption Credit. In these cases, the expenses claimed for each cannot overlap. 

WHAT DO EMPLOYEES NEED TO KNOW ABOUT AN ADOPTION ELECTION? 

An Adoption Assistance Account must be elected during open enrollment. The tax year for which employees can claim the credit depends on when the expenses are paid; whether it’s a domestic adoption or a foreign adoption; and when, if ever, the adoption was finalized. Employees choosing to take advantage of an Adoption Assistance Account should be vigilant in understanding when services will be provided before making an election. 

Promoting Awareness and Accessibility 

 To ensure that employees are aware of and can easily access these benefits, you should take proactive measures to promote awareness and provide support throughout the year. This can include hosting informational sessions, providing educational materials, and offering assistance with navigating benefit options. By sharing a culture of support and understanding, you can empower employees to take advantage of the resources available to them and navigate the foster care and adoption journey with confidence. 

Supporting Employees Through Foster Care and Adoption Initiatives 

As we celebrate National Foster Care Month, let’s not only recognize the importance of supporting children and families in need but also take action to support employees who are embarking on the foster care and adoption journey. By offering adoption assistance accounts, dependent care benefits, and other related benefits, you can provide a valuable financial hand to employees during this significant time while demonstrating their commitment to employee well-being and family-friendly policies. Together, we can create a workplace culture that nurtures families and supports employees in all aspects of their lives. 

Let’s connect if you’re interested in learning more about adoption assistance and dependent care.