House Bill 436 – Flexible Spending Accounts for Child Care

Child Care Baby

By: J. S.

Could paying for childcare in Hawaii become easier for working families? A 2021 House Bill proposes creating child care flexible spending accounts that allow citizens to use untaxed income to help cover these expenses. House Bill 436 was introduced in January by House Representative Matsumoto and eight other Representatives. The bill currently sits with three House Committees.

The bill proposes “establishing Dependent Care Flexible Spending Accounts for all working taxpayers and defining qualifying individuals and eligible expenses. It also outlines the requirements and limitations of the accounts and applies to taxable years beginning after 12/31/2021.”

Importantly, the bill would allow for up to $5,000 in gross income per household to be added to a flexible spending account specifically for childcare. For married partners filing taxes separately, up to $2,500 could be added to the account per person. Childcare has several definitions according to the bill’s current wording. The goal is to allow qualifying individuals to pay for different childcare related services that would allow them to continue working. Such services would cover dependents under the age of 13 years old, as well as a dependant or spouse who is physically or mentally incapable of self care.

Childcare in Hawaii is a large expense for many families. As Hawaii’s population ages, families also grapple with concerns about caring for elderly family members during the work week. Childcare expenses in the islands are among the highest in the nation. The Federal Government has created a Dependent Care Flexible Spending Account (FSA) into the tax code to help cover such expenses. At this time however only State workers in Hawaii are able to take advantage of this type of FSA.

As of 2020, Hawaii has seen a drop in available child care options. Child Care Aware reported that from 2018 to July 2020, child care centers that reported being open shrank from 560 to 181. Family child care that reported being opened dropped from 358 to 205. There are roughly 107,000 children in Hawaii under 6 years old, and an estimated 64,000 children have both parents in the workforce.

The federal government defines affordable childcare as costing 7% or less of a family’s monthly income. According to this metric, child care on the islands is very often not affordable for the median household, depending on the type of care. For before and after school programs at child care centers, the median household spends about 3% of their income, and a single parent spends about 10%. This amount drastically increases for family childcare, where families spend about 9% and single parents spend about 25% of their income to cover expenses. As rent and housing is already a large expense for families, reducing taxes on income so families can afford childcare would help create more financial stability.

Stable, high quality child care is important to help bring Hawaii’s economy back, and it is a wise investment for the future generations. According to a 2017 report by Hawaii Children’s Action Network and University of Hawaii, “early childhood programs are an extraordinarily wise investment. Each dollar spent on early childhood programs yields a three to eight fold return in long-term economic benefits to society.” The report found a critical shortage of child care for infant toddler care, which is often the most expensive age for child care. Providing working families with an untaxed flexible spending account to fund their children’s care is an important investment we can make to strengthen our communities and empower families.