written by Amy Shewmaker
Employers may be able to claim a tax credit for a portion of their expenses for providing child care to their employees. Code Section 45F allows an employer-provided child care credit, which is a part of the general business credit. Businesses calculate the credit using Form 8882, Credit for Employer-Provided Childcare Facilities and Service, and enter any credit amount on Form 3800, General Business Credit, which must be attached to an employer’s tax return.
Amount of the credit
The amount of the credit is the sum of 25 percent of an employer’s “qualified childcare facility expenditures,” plus 10 percent of the employer’s “qualified childcare resource and referral expenditures” for the tax year. The total credit amount is limited to $150,000.
Qualified childcare facility expenditures
Examples of qualified child care expenditures include:
- Expenses paid to acquire, construct, rehabilitate, or expand a qualified child care facility that is to be used by the taxpayer; is depreciable; and is not the principal residence of the taxpayer or any of the taxpayer’s employees
- Expenses for operating costs of a qualified child care facility
- Amounts paid under a contract with a qualified child care facility to provide childcare to the taxpayer’s employees.
Qualified childcare facility
Child care expenses are only qualified for the credit if the expenses were paid to a qualified child care facility. This is defined as a facility whose main purpose (unless it is the principal residence of the operator) is to provide child care. A qualified childcare facility must also meet the requirements of all state and local laws. Additionally:
- A facility must have enrollment open to employees of the taxpayer during the tax year
- The facility may not discriminate in favor of highly compensated employees
- Finally, if the facility itself is the principal business of the taxpayer, at least 30 percent of the children enrolled must be dependents of employees of the taxpayer.
No double benefit
Taxpayers are not entitled to double benefits from the same expenses. For example, if an employer claims a credit for expenses of constructing, rehabilitating, or expanding a qualified childcare facility, the employer must reduce its basis of the property by the amount of the credit. If the credit is recaptured, however, the employer may increase the basis of the property by the amount of the credit recaptured.
If a recapture event occurs during the first ten years after a qualified childcare facility is placed into service, the employer must pay back all, or a portion, of the credit taken for qualified child care expenditures with respect to that qualified child care facility. The amount of the credit that must be recaptured decreases over the ten-year period.
If you have any questions about how to compute the employer-provided childcare credit, please contact our office 417-881-0145.