All About the Employer-Provided Childcare Tax Credit

Are you a business owner looking to provide childcare services to your employees? If so, you might be eligible for a valuable tax credit. The Employer-Provided Childcare Credit allows employers to receive a tax credit of up to $150,000 per year. This credit can offset 25% of qualified childcare facility expenditures and 10% of qualified childcare resource and referral expenditures. Designed to encourage businesses to support their employees with childcare options, this credit can significantly reduce your tax burden. But how can you qualify?

To be eligible, an employer must have incurred qualified childcare expenditures during the tax year and provided these services to employees. Qualified expenditures include:

1. Costs related to acquiring, constructing, rehabilitating, or expanding property used as a qualified childcare facility.

2. Facility expenditures.

3. Qualified resource and referral expenditures.

For a facility to qualify, it must be licensed by the state or local government and meet the following conditions:

1. The principal use of the facility is to provide childcare assistance.

2. Enrollment is open to the taxpayer’s employees during the year.

3. If the facility is also the principal business of the owner, at least 30% of enrollees must be dependents of the taxpayer’s employees.

4. The facility cannot discriminate in favor of highly compensated employees.

Qualified resource and referral expenditures also count towards the credit. These expenditures are the amounts paid under a contract to provide childcare resources and referral services to employees, and they must not favor highly compensated employees.

To claim this credit, business owners must use Form 8882. Keep in mind that the credit claimed cannot exceed $150,000, and there is no double benefit allowed. This means you must reduce these items by the amount of the credit when determining the basis of the qualified childcare facility and certain business deductions and credits.

Providing childcare services to your employees not only supports their well-being but can also provide significant tax savings for your business. Consider taking advantage of the Employer-Provided Childcare Credit to benefit both your employees and your bottom line. For more information, please contact The Center for Financial, Legal, & Tax Planning, Inc. professionals at (618) 997-3436.