With childcare shortages and rising costs putting pressure on employees, and even keeping some out of the workforce entirely, employers have a unique opportunity to attract talent with childcare benefits. For employers that may be interested in offering these benefits, there are tax credits available to help fund that effort.
Federal Childcare Assistance Tax Credit Eligibility and Qualifying Expenses
The Federal Employer-Provided Childcare Credit (45F), offers partial reimbursements to employers for the costs associated with providing childcare to employees. Open to employers (C-corps, S-corps, partnerships, LLCs, other passthrough entities), the Federal Childcare Assistance Tax Credits can be utilized for the following:
- To acquire, construct, rehabilitate, or expand property which is to be used as part of a qualified child care facility
- For the operating costs of a qualified child care facility of the taxpayer, including costs related to the training of employees, to scholarship programs, and to the providing of increased compensation to employees with higher levels of child care training
- Costs associated with a contract with a qualified child care facility to provide child care services to employees of the taxpayer, or under a contract with an intermediate entity that contracts with one or more qualified child care facilities to provide such child care services
The credits available through the program in one tax year are equal to the sum of:
(1) 40 percent (50 percent in the case of an eligible small business) of the qualified child care expenditures, and
(2) 10 percent of the qualified child care resource and referral expenditures.
The maximum credits available through these federal tax credits are $500,000 ($600,000 in the case of an eligible small business).
Kansas Childcare Assistance Tax Credits
In addition to the federal tax credits available, the state of Kansas offers childcare tax credits as an incentive for employers. With the same group of employers (C-corps, S-corps, partnerships, LLCs, other pass-through entities) eligable, the Kansas Childcare Tax credit (45F) covers two broader categories of qualifying expenses:
- Category 1: Expenses related to the provision of child care for an organization’s employees
- Paying for childcare for employees
- Establishing or expanding a child care program that is primarily used by employees
- Paying for referral services that connect employees to childcare providers
- Collaborative childcare investment (with other employers)
- Category 2: Employer/Business contributions to a third party that expands the availability of community childcare options
- Establishing or expanding a childcare program, including support to establish or maintain licensing
- Enabling a program to purchase learning materials or play equipment
- Professional development for childcare staff
- Childcare tuition assistance for families in need
- Referral services that connect families to childcare providers
The credits available for the Kansas State Program are based on category as follows:
- Category 1: 75% up to $100,000 Category
- Category 2: 75% up to $100,000 if the recipient accepts and serves children/families with child care subsidy 50% up to $100,000 if the recipient does not accept/serve children/families with childcare subsidy
Integrating Childcare Assistance Into Employee Benefits Packages
Whether opening/rehabbing/expanding a childcare facility, operating a childcare center, or even contracting with third parties to offer childcare services, employers have a number of ways through which they can utilize federal and/or state-level tax credits to help fund childcare assistance for employees. Depending on the needs of your employees and the funds available to support the costs not reimbursed by the tax credits, one of these options may be a viable way to build up your benefits package for employees, something that has been successfully implemented in Pottawatomie County and beyond.
Want more help understanding the basics of the childcare assistance tax credits programs, or other incentives that might be available for you as a local employer? Don’t hesitate to reach out to us – we’re here to help connect our local businesses with the vital resources, partners, and partners you need to thrive.
