I 

118TH CONGRESS 

2D SESSION H. R. 7407 

To amend the Internal Revenue Code of 1986 to provide a credit to certain 

small employers for the startup costs of dependent care flexible spending 

plans. 

IN THE HOUSE OF REPRESENTATIVES 

FEBRUARY 16, 2024 

Mr. SMITH of Nebraska (for himself, Mr. DAVIS of Illinois, and Mr. 

FEENSTRA) introduced the following bill; which was referred to the Committee on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

a credit to certain small employers for the startup costs 

of dependent care flexible spending plans. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Small Business De5 pendent Care FSA Opportunity Act’’. 

6 SEC. 2. SMALL EMPLOYER DEPENDENT CARE FLEXIBLE 

7 SPENDING PLAN STARTUP COSTS. 

8 (a) IN GENERAL.—Subpart D of part IV of sub9 chapter A of chapter 1 of the Internal Revenue Code of 


ssavage on LAPJG3WLY3PROD with BILLS
2 

•HR 7407 IH

1 1986 is amended by adding at the end the following new 

2 section: 

3 ‘‘SEC. 45BB. SMALL EMPLOYER DEPENDENT CARE FLEXI4 BLE SPENDING PLAN STARTUP COSTS. 

5 ‘‘(a) IN GENERAL.—For purposes of section 38, in 

6 the case of an eligible employer, the small employer de7 pendent care flexible spending plan startup cost credit de8 termined under this section for any taxable year is an 

9 amount equal to the qualified startup costs paid or in10 curred by the taxpayer during the taxable year. 

11 ‘‘(b) DOLLAR LIMITATION.—The amount of the cred12 it determined under this section for any taxable year shall 

13 not exceed— 

14 ‘‘(1) for the first credit year and each of the 2 

15 taxable years immediately following the first credit 

16 year, the greater of— 

17 ‘‘(A) $500, or 

18 ‘‘(B) the lesser of— 

19 ‘‘(i) $250 for each employee of the eli20 gible employer who is not a highly com21 pensated employee (as defined in section 

22 414(q)) and who is eligible to participate 

23 in the dependent care flexible spending 

24 plan maintained by the eligible employer, 

25 or 


ssavage on LAPJG3WLY3PROD with BILLS
3 

•HR 7407 IH

1 ‘‘(ii) $5,000, and 

2 ‘‘(2) zero for any other taxable year. 

3 ‘‘(c) ELIGIBLE EMPLOYER.—For purposes of this 

4 section— 

5 ‘‘(1) IN GENERAL.—The term ‘eligible em6 ployer’ has the meaning given such term by section 

7 408(p)(2)(C)(i). 

8 ‘‘(2) REQUIREMENT FOR NEW DEPENDENT

9 CARE FLEXIBLE SPENDING PLANS.—Such term shall 

10 not include an employer if, during the 3-taxable year 

11 period immediately preceding the 1st taxable year 

12 for which the credit under this section is otherwise 

13 allowable for a dependent care flexible spending plan 

14 of the employer, the employer or any member of any 

15 controlled group including the employer (or any 

16 predecessor of either) established or maintained a 

17 dependent care flexible spending plan for substan18 tially the same employees as the employees for whom 

19 the dependent care flexible spending plan with re20 spect to which such credit is otherwise allowable is 

21 established or maintained. 

22 ‘‘(d) OTHER DEFINITIONS.—For purposes of this 

23 section— 

24 ‘‘(1) IN GENERAL.—The term ‘qualified startup 

25 costs’ means any ordinary and necessary expenses of 


ssavage on LAPJG3WLY3PROD with BILLS
4 

•HR 7407 IH

1 an eligible employer which are paid or incurred in 

2 connection with— 

3 ‘‘(A) the establishment or administration 

4 of a dependent care flexible spending plan, or 

5 ‘‘(B) education of employees with respect 

6 to such plan. 

7 ‘‘(2) PLAN MUST HAVE AT LEAST 1 PARTICI8 PANT.—Such term shall not include any expense in 

9 connection with a plan that does not have at least 

10 1 employee eligible to participate who is not a highly 

11 compensated employee (as defined in section 

12 414(q)). 

13 ‘‘(3) DEPENDENT CARE FLEXIBLE SPENDING

14 PLAN.—The term ‘‘dependent care flexible spending 

15 plan’’ means so much of any plan of an employer as 

16 consists of dependent care flexible spending arrange17 ments. For purposes of the preceding sentence, an 

18 arrangement shall be treated as a dependent care 

19 flexible spending arrangement only if employer con20 tributions to such arrangement are excludible from 

21 the gross income of an employee under section 129. 

22 ‘‘(4) FIRST CREDIT YEAR.—The term ‘‘first 

23 credit year’’ means, with respect to any qualified 

24 startup costs— 


ssavage on LAPJG3WLY3PROD with BILLS
5 

•HR 7407 IH

1 ‘‘(A) the taxable year which includes the 

2 date that the dependent care flexible spending 

3 plan to which such costs relate becomes effec4 tive, or 

5 ‘‘(B) at the election of the eligible em6 ployer, the taxable year preceding the taxable 

7 year referred to in subparagraph (A). 

8 ‘‘(e) SPECIAL RULES.—Rules similar to the rules of 

9 section 45E(e) shall apply for purposes of this section.’’. 

10 (b) CREDIT TO BE PART OF GENERAL BUSINESS

11 CREDIT.—Section 38(b) of such Code is amended by strik12 ing ‘‘plus’’ at the end of paragraph (40), by striking the 

13 period at the end of paragraph (41) and inserting ‘‘, plus’’, 

14 and by adding at the end the following new paragraph: 

15 ‘‘(42) in the case of an eligible employer (as de16 fined in section 45BB(c), the small employer de17 pendent care flexible spending plan startup cost 

18 credit determined under section 45BB.’’. 

19 (c) CLERICAL AMENDMENT.—The table of sections 

20 for subpart D of part IV of subchapter A of chapter 1 

21 of such Code is amended by adding at the end the fol22 lowing new item: 

‘‘Sec. 45BB. Small employer dependent care flexible spending plan startup 

costs.’’. 

23 (d) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to amounts paid or incurred after 


ssavage on LAPJG3WLY3PROD with BILLS
6 

•HR 7407 IH

1 the date of the enactment of this Act, in taxable years 

2 ending after such date. 

Æ 


ssavage on LAPJG3WLY3PROD with BILLS