The Employer-Provided Childcare Tax Credit

Employers who provide childcare services to their employees could be eligible for the employer-provided childcare tax credit, which covers expenses for childcare facilities, childcare resources, and referrals. This credit is an incentive that offers qualifying businesses a tax credit of up to $150,000 to offset 25 percent of their yearly childcare facility expenditures, in addition to ten percent of childcare resource or referral costs paid or incurred during that year.

Eligibility for the Tax Credit 

To qualify for the employer-provided childcare tax credit, employers must have either paid or incurred childcare expenditures in order to provide those services to employees.

Qualified childcare expenditures include:

• The costs of acquiring, constructing, or expanding a property for a childcare facility;
• Operating expenses incurred by the business, such as amounts paid to train childcare workers; and
• Resource and referral expenditures, including amounts paid to a childcare facility to provide services to the taxpayer’s employees.

Read on to learn more about the specific requirements for these qualifications.

What is a Qualifying Childcare Facility? 

To qualify as a childcare facility for tax credit purposes, the facility in question must be properly licensed with the state and:

• Be used principally to provide childcare assistance;
• Be open to the children of employees during the year; and
• Cannot discriminate in favor of employees who are highly compensated.

It’s also important to note that in cases where the facility itself is the principal trade of the business, then at least 30 percent of the children enrolled must be dependents of employees for the employer to qualify for the childcare tax credit.

What are Qualifying Childcare Facility Expenditures? 

The employer-provided childcare tax credit can also be used to apply to qualified expenditures for the facility. This includes amounts paid in order to acquire, construct, or expand property that:

• Will be used as the childcare facility;
• Is depreciable property; and
• Is not part of the employer’s principal residence.

Qualified childcare facility expenses, however, don’t include costs that exceed the fair market value of care.

What are Qualifying Resources and Referral Expenditures?

Finally, the tax credit can be applied to costs that were paid under contract to provide childcare resources and referral services to the taxpayer’s employees.

How Do I Claim the Credit? 

To claim the employer-provided childcare tax credit, a taxpayer must fill out Form 8882. Companies are only allowed to claim up to $150,000 of the credit and are not permitted to claim a double benefit. For instance, taxpayers must reduce certain items by the amount of the credit, including the basis of the facility and specific business deductions and credits. This credit is also part of the general business credit, which means that it is subject to both the carryback and carryforward rule, so employers can “carryback” unused credits for a year and then “carryforward” 20 years after the year that the credit was claimed. Finally, taxpayers whose businesses qualify as pass-through entities should report their credit on Form 3800.

50 Years of Tax Experience 

If you believe that your company could qualify for the employer-provided childcare tax credit, please call CPA, former FBI Special Agent, and experienced Florida and nationwide tax attorney Ronald Cutler, P.A. for help. You can set up a one-on-one consultation by calling our legal team at 386-490-9949 today.

Sources: 

irs.gov/businesses/small-businesses-self-employed/employer-provided-childcare-credit#how-it-works

irs.gov/forms-pubs/about-form-8882