As we discussed in last week's blog, it is vitally important that employers find ways to retain their top talent. A major reason that people leave the work force is that child care is so expensive that many parents end up feeling that they would just be working to pay for child care. However, the Internal Revenue Code provides a great solution! Employers that provide child care may claim the Employer-Provided Child Care Tax Credit and retain their talented employers!
An employer who provides child care may claim a federal income tax credit equal to 25% of qualified child care expenditures and 10% of qualified child care resource and referral expenditures, with a maximum tax credit of $150,000.
Qualified child care expenditures include:
- Costs to acquire, construct, rehabilitate, or expand the property that is to be used as a qualified child care facility, as long as it is not part of the principal residence of the employer or any of the employer's employees;
- The operating costs of the qualified child care facility; and
- Contracts with a qualified child care facility to provide child care services to employees
Example
XYZ Corporation has been experiencing a high turnover rate because of the number of young parents that it employers. In an effort to retain a greater number of its highly talented employees, it decided to convert some unused office space into a child care facility (at a cost of $300,000) and hire several individuals with extensive amounts of child care training to operate the facility (at a cost of $200,000 per year).
XYZ Corporation can claim a federal income tax credit of $125,000 (25% of the qualified expenses) in the first year, and a $50,000 tax credit (25% of the operational costs) in the following years.
If you would like to learn more about the Employer-Provided Child Care Tax Credit and special rules that apply to it, please feel free to send me an e-mail.
As always, I appreciate your feedback. Please leave your thoughts in the comment section below.
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