Small Business Dependent Care FSA Opportunity Act

Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

For purposes of section 38, in the case of an eligible employer, the small employer dependent care flexible spending plan startup cost credit determined under this section for any taxable year is an amount equal to the qualified startup costs paid or incurred by the taxpayer during the taxable year.

The amount of the credit determined under this section for any taxable year shall not exceed—

(1) for the first credit year and each of the 2 taxable years immediately following the first credit year, the greater of—

(A) $500, or

(B) the lesser of—

(i) $250 for each employee of the eligible employer who is not a highly compensated employee (as defined in section 414(q)) and who is eligible to participate in the dependent care flexible spending plan maintained by the eligible employer, or

(ii) $5,000, and

(2) zero for any other taxable year.

For purposes of this section—

The term eligible employer has the meaning given such term by section 408(p)(2)(C)(i).

Such term shall not include an employer if, during the 3-taxable year period immediately preceding the 1st taxable year for which the credit under this section is otherwise allowable for a dependent care flexible spending plan of the employer, the employer or any member of any controlled group including the employer (or any predecessor of either) established or maintained a dependent care flexible spending plan for substantially the same employees as the employees for whom the dependent care flexible spending plan with respect to which such credit is otherwise allowable is established or maintained.

For purposes of this section—

The term qualified startup costs means any ordinary and necessary expenses of an eligible employer which are paid or incurred in connection with—

(A) the establishment or administration of a dependent care flexible spending plan, or

(B) education of employees with respect to such plan.

Such term shall not include any expense in connection with a plan that does not have at least 1 employee eligible to participate who is not a highly compensated employee (as defined in section 414(q)).

The term dependent care flexible spending plan means so much of any plan of an employer as consists of dependent care flexible spending arrangements. For purposes of the preceding sentence, an arrangement shall be treated as a dependent care flexible spending arrangement only if employer contributions to such arrangement are excludible from the gross income of an employee under section 129.

The term first credit year means, with respect to any qualified startup costs—

(A) the taxable year which includes the date that the dependent care flexible spending plan to which such costs relate becomes effective, or

(B) at the election of the eligible employer, the taxable year preceding the taxable year referred to in subparagraph (A).

Rules similar to the rules of section 45E(e) shall apply for purposes of this section.

Section 38(b) of such Code is amended by striking plus at the end of paragraph (40), by striking the period at the end of paragraph (41) and inserting, plus, and by adding at the end the following new paragraph:

(42) in the case of an eligible employer (as defined in section 45BB(c)), the small employer dependent care flexible spending plan startup cost credit determined under section 45BB.

The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by adding at the end the following new item:

The amendments made by this section shall apply to amounts paid or incurred after the date of the enactment of this Act, in taxable years ending after such date.