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Affordable Childcare is Good Business
According to Child Care Aware of America’s 2018 Georgia Fact Sheet on the price of child care, the average annual cost of infant center-based care in Georgia was $8,327. That’s just about the average annual cost of college tuition in Georgia. It’s easy to see how many parents don’t feel as though any of these providers can offer them truly affordable options. Without affordable childcare, many parents will not be able to enter or remain in the workforce.
As an employer, it’s important to recognize this vital need of families.
You might be under the assumption that there’s nothing you can do as a business owner that can reduce child care costs for your employees. With the help of federal and state tax relief, you likely have more options at your disposal than you realize:
Offering on-site child care
Businesses can receive a federal tax credit equal to 25 percent of expenses for employee child care. The maximum credit allowed per year is capped at $150,000. The credit is part of the general business credit and can be claimed any time within three years from the due date of the return. (IRS Form 8882).
- To be eligible for the credit:
- The primary use of the program must be for child care and the program must meet all the applicable state and local laws.
- The child care program must be open to enrollment to the employees of the business.
- Enrollment cannot discriminate in favor of highly compensated employees.
- At least 30 percent of the children enrolled in the program must be dependents of employees of the business.
- Qualified child care expenses include costs paid to:
- Acquire, construct, rehabilitate, or expand property that is to be used for the child care program;
- Operate the program, including the costs of training and compensation for employees of the child care programs as well as scholarship programs;
- Under a contract with a qualified program to provide child care to employees of the program.
From Georgia, businesses can receive a 100% total state tax credit, 10 percent credit per year for 10 years for land acquisition, improvements, buildings, building improvements, furniture and equipment used for the construction, expansion, improvement or operation of an employer provided child care program.
- Any unused credit may be carried forward for three years and the credit is limited to 50 percent of the employer’s Georgia income tax liability for the tax year.
- Qualified child care property include: Land acquisition, improvements, buildings, building improvements, furniture, fixtures and equipment purchased or acquired or placed in service after July 1, 1999 for use exclusively in the construction, expansion, improvement, or operation of an employer provided child care facility.
- The facility must be licensed or commissioned by the Georgia Department of Early Care and Learning or approved by any successor agency having regulatory authority over child care services.
- 95 percent of the children who use the facility must be children of the employees of the business and other employers if the child care property is owned jointly by more than one employer.
- Recapture provisions apply if the property is transferred or committed to a use other than child care within 14 years after the property is placed in service. This credit should be claimed on GA Form IT-CCC100. For more information, refer to C.G.A. §48-7-40.6.
Contracting for child care
Businesses can contract with a child care program to provide child care for their employees. Like on-site child care, a federal credit is available for up to 25 percent of expenses and capped at $150,000.
- Businesses that provide or sponsor child care for employees are eligible for a Georgia state tax credit of up to 75 percent of the employer’s direct costs. In sponsoring child care for employees, businesses contract for child care slots with local child care programs.
- Employers who provide or sponsor child care for employees are eligible for a tax credit of up to 75 percent of the employers’ direct costs. The credit may not exceed 50 percent of the taxpayer’s total state income tax liability for the taxable year.
- “Employer provided” child care refers to child care offered on the premises of the employer.
- “Employer sponsored” child care refers to a contractual arrangement with a child care program that is paid for by the employer.
- Any credit claimed but not used in any taxable year may be carried forward for five years from the close of the taxable year in which the cost of the operation was incurred. This credit should be claimed on Form IT-CCC75. For more information, refer to C.G.A. §48-7-40.6.
Helping families find child care
Business can receive a 10 percent federal tax credit for contracting with Child Care Resource and Referral Agencies, like Quality Care for Children, to help families find child care within their budget.
- Child Care Resource and Referral expenditures:
- Qualified child care resource and referral expenses are amounts paid or incurred under a contract to provide child care resource and referral services to the employees of the business.
- Activities must be provided in a way that does not discriminate in favor of highly compensated individuals.
Offering employees tax-free payments for child care
Employers can set up Dependent Care Assistance Plans, which are flexible spending accounts, and enable employees to set aside up to $5,000 in pre-tax salary for child care expenses (Section 129 of the Internal Revenue Code).
- Using pre-tax dollars means a tax savings to employees (potentially 20-40 percent of child care expenses depending upon the family’s tax bracket and expenses incurred for child care) as well as a tax savings for employers (funds set aside through a flexible spending account reduce an employers’ payroll – for example, these funds aren’t subject to FICA or FUTA taxes).
- For many employees with young children, they may already be paying for child care, so the option for a flexible spending account reimburses them at a tax savings for money that would be spent anyway.
- Tax savings by utilizing DCAP benefits. It’s always a good idea to consult with a tax professional, but conceptually, there are savings to be realized through the tax code for employers who wish to assist their employees with child care affordability.
- You can read more about flexible spending accounts through Georgia’s Employee Benefit Plan Council summary.
Inform Your Employees about Financial Assistance Available to Them
When you send your employees their W-2 at tax time, remind them that if they have children for whom they pay for child care services, they can claim the Dependent Care Tax Credit.
- The Dependent Care Tax Credit (DCTC) is an opportunity for families to take a tax credit for child care expenses related to dependent children under age 13 or expenses relating to caring for those individuals who are mentally or physically disabled (and who are claimed as a dependent).
- The amount of eligible expenses are capped and only a percentage of the allowable expenses are used to calculate the credit. For example, the credit rate declines as income rises.
- To read more information about the DCTC, check out IRS Form 2441and related IRS resources that describe how to calculate the credit.
Tell your employees about the Georgia Child Care Tax Credit. This credit offers families an additional 30 percent of the federal Dependent Care Tax Credit, when families file state taxes.
- The Georgia tax credit form is very simple to fill out!
Provide information about the Child care and Parent Services (CAPS) program operated through Bright from the Start: Georgia’s Department of Early Care and Learning. Eligible families can earn up to about 150 percent of the federal poverty level and still potentially qualify for child care subsidies.