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DBS Digest

Navigating employee benefits in an ever-changing regulatory landscape.

WI Child Care Pre-Tax Reimbursement Accounts

Last week, the Wisconsin State Assembly passed a package of bills that take a multi-pronged, targeted approach to supporting families and child care providers. One of the bills – authored by Rep. Joy Goeben (R-Hobart) – would permit families across Wisconsin to use tax-advantaged savings accounts to pay for childcare.

The proposed legislation would require the Dept. of Financial Institutions (DFI) to establish a child care reimbursement account program through which a parent or other legal guardian may create a state tax-advantaged account to pay for qualifying expenses of dependents under the age of 13. Beginning in 2024, any person (including employers, family members, etc.) may contribute to an account and deduct the amount for state income tax purposes…up to a maximum of $10,000 per account per calendar year.*

Based on data from recent individual income tax samples, there were approximately 34,000 individuals who claimed expenses above the federal child and dependent care credit maximum and did not use an employer-sponsored dependent care assistance program. If each of those individuals applied for and contributed to an account under this bill, they could have claimed approximately $160 million in Wisconsin subtractions.

The bill will now head to the State Senate for further consideration.

*Note: If the account owner or the account owner’s spouse has excluded income under Section (§) 129 of the Internal Revenue Code, referred to as a Dependent Care Flexible Spending Reimbursement Account, the total of contributions to the proposed Wisconsin Child Care Tax-Advantaged Account for that taxable year may not exceed an amount equal to $10,000 minus the amount excluded from the income of the account owner and the account owner’s spouse under §129.