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As an employer, can I get a childcare assistance and subsidies from the tax credit program - Absolutely, yes!

Thinking about starting a corporate childcare program for your employees', you have more help than you know!

Did you know that the federal government has a little-known tax credit program for businesses who want to provide Child Care assistance and subsidies to their employees? It’s designed in part to cover some of the associated costs of Child care.

Little Einstein's Nanny Agency is not a tax consultant, nor do we provide tax advice of any kind. We encourage employers to consult their tax professionals for more information on eligibility and tax credits available to organizations offering sponsored Child Care benefits. As per the IRS website, employers may be able to qualify for up to $150,000 per year in tax credits for offering Child Care benefits. This includes 10% of resource and referral network support for employees, and 25% for cost-sharing employer monetary contributions and/or Child Care facility expenditures. For reference, employers may use this form to process eligible credits per qualified expenditures.

Read excerpts below by some subject matter experts to understand more about this program:

“Workers need Child Care. Without it, employees with young children may reduce their hours and productivity or leave the workforce altogether. More than half (57%) of parents said Child Care responsibilities impacted their ability to work over the last month. Businesses have a vested interest in ensuring their staff can access and afford Child Care: when companies offer Child Care benefits, they see increased employee retention and loyalty, improved productivity, and a better workplace environment. Despite the clear advantages, 2020 data from the Bureau of Labor Statistics indicates just 11% of all workers have access to employer-provided Child Care, and those with lower incomes were less likely to receive a benefit. To encourage businesses to provide Child Care to their employees, the federal government offers companies a tax credit to help cover some of the associated costs. The Employer-Provided Child Care Credit, under the Internal Revenue Code Section 45F, offers employers a tax credit of up to 25% of qualified Child Care expenditures and 10% of qualified Child Care resource and referral expenditures. The credit is capped at $150,000, meaning employers would have to spend around $430,000 to receive the full credit, and any further spending exceeding that amount would not be reimbursed.”
“Offering Child Care subsidies can increase employee satisfaction and engagement. “[Managers] earn employee loyalty and increased productivity from grateful employees who aren’t ridiculously stressed by constant kid interruptions while working,” Laura Handrick, an HR consultant in Phoenix, said. There is a financial benefit as well: Employers that supply Child Care subsidies can take advantage of an annual tax credit of up to $150,000 if they use it for qualified Child Care facilities and services. According to the IRS, “the credit is 25 percent of the qualified child-care facility expenditures, plus 10 percent of the qualified child-care resource and referral expenditures paid or incurred during the tax year.” To receive the tax credit, employers must complete Form 8882.”
“As a way of retaining good employees and keeping them focused on their jobs, employers commonly offer attractive fringe benefits to their workforce. For workers who have young children, employer paid Child Care expenses can be a powerful incentive. As with other employee benefits such as health care and bonuses, Child Care costs can be deducted by an employer as a business expense. The Internal Revenue Service allows 25 percent of costs to be credited, up to a maximum of ​$150,000​. Organizations can receive credit, up to 10 percent, of costs associated with resource and referral expenditures. In other words, these are expenses incurred when a business contracts with off-site facilities or careers. Under the tax law, the provision of employer paid Child Care expenses is considered a fringe benefit that may be excludable from your employees’ taxable earnings if certain requirements are met. The benefit must be provided pursuant to a dependent care assistance program that your business offers to all eligible employees – meaning the employee can claim her children as dependents and the childcare services are necessary so that she can spend more time at work. If eligible, your business can provide up to ​$5,000​ in childcare assistance to each employee and exclude it from their taxable wages reported on Form W-2. When the value of the childcare isn’t treated as taxable compensation, your business also stands to save additional money since Social Security, Medicare and federal unemployment taxes aren’t owed on the benefit. It is the responsibility of the recipient to to declare the benefit of workplace-funded Child Care on the individual tax return.”

What Are Qualified Child Care Expenditures?

Qualified Child Care expenditures are expenses that are eligible for tax credits or deductions related to Child Care. These expenses are incurred by parents or guardians who pay for Child Care services for their children while they work or attend school.

Examples of qualified childcare expenditures include fees paid to a licensed Child Care provider, such as a daycare center or in-home caregiver, for the care of a child under the age of 13. Other eligible expenses may include summer day camps and after-school programs that provide care for children.

To be considered a qualified childcare expenditure, the expense must be necessary for the parents or guardians to work or attend school. The expense must also be incurred for the care of a qualifying person, such as a dependent child under the age of 13 or a disabled dependent of any age.

Qualified childcare expenditures are eligible for tax credits or deductions under certain circumstances. For example, the Child and Dependent Care Credit is a tax credit that allows eligible parents to claim a percentage of their qualified childcare expenses, up to a certain limit, as a credit on their tax return. Other tax deductions, such as the Dependent Care Flexible Spending Account, allow parents to set aside pre-tax dollars to pay for qualified childcare expenses.

It’s important to keep accurate records of qualified childcare expenditures, including receipts and invoices, to support any tax credits or deductions claimed on tax returns.

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