The Credit for Employer-Provided Childcare Facilities

Providing Childcare For Your Employees? You may qualify for a huge credit

The Credit for Employer-Provided Childcare Facilities is tax credit that encourages employers to provide childcare to their employees. An employer can get a tax credit up to $150,000 per year to offset 25% of qualified childcare facility expenses and 10% of qualified childcare resource and referral expenses.

This general business credit is for companies that provide childcare services to their employees. This covers childcare facilities, childcare resources, and referrals.

For more detailed information, refer to Employer-provided childcare credit at IRS.gov, but here is the summary of eligibility requirements in order to claim this big credit.

Eligibility

A company can claim the credit if it pays or incurs qualified childcare expenses for its employees during the tax year.

Expenditures on childcare are qualified if:

1. Amounts paid to acquire, build, renovate, or expand a qualified childcare facility for the taxpayer.
2. Tax-deductible childcare facility expenses include amounts paid for training and scholarships for employees with higher levels of childcare training, as well as increased compensation for these employees.
3. Employee childcare services provided by a qualified childcare facility under a contract with the taxpayer.

Qualified Facility

In order to be qualified, a childcare facility needs to meet all the state and local laws and regulations. The facility needs to be licensed as a childcare center.

There are also these requirements:

• Unless the facility is also the principal residence of the person operating the facility, the main use of the facility must be childcare assistance.
• Employees of the taxpayer must be able to enroll in the facility.
• At least 30% of the facility’s enrollees have to be dependents of the taxpayer’s employees if it’s their principal trade or business.
• You can’t discriminate against highly compensated employees in using the facility

Qualified Expenditures

Spending on childcare facilities qualifies as qualified expenditures if you pay or incur the following:

• Buying, building, renovating or expanding property that:
  • Qualified childcare facilities for taxpayers
  • Property that can be depreciated (or amortized)
  • Doesn’t count as the taxpayer’s principal residence or any employee’s principal residence
• Provide childcare to taxpayers. Employees with higher levels of childcare training get paid more, training is available, and scholarships are available.

Expenses over fair market value are not included in qualified childcare facility expenditures.

Qualified resource and referral expenditures

These are the costs you’re paying or incurred under a childcare resource and referral contract.

Note that you can’t get double benefits, these items must be reduced by the credit amount

How to claim the credit

You can claim the credit on Form 8882, Credit for Employer-Provided Childcare Facilities.

You can’t claim more than $150,000 in credit. Expenses that exceed the credit amount can be deducted.

Sources

“Tax Credit for Employer-Provided Child Care Facilities & Services” – Civitas Strategies

 

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