Bill Would Up Employer Child Care Assistance Credit

Bipartisan legislation introduced in the House last week would increase the amount of the tax credit that businesses can claim for investing in child care services for their employees — with an emphasis on small businesses and those located in low-income and rural areas.

The Child Care for American Families Act (HR 8540), introduced by Representatives David Kustoff (R-TN), Brad Schneider (D-IL), Claudia Tenney (R-NY), and Terri Sewell (D-AL), would amend Code Sec. 45F to increase both the percentage of a business’ expenses eligible for the credit and the maximum credit value.

Currently under Code Sec. 45F, employers can claim a credit for certain costs associated with providing child care services for employees. Businesses are eligible for a credit of up to 25% for “qualified child care expenditures,” which include the costs of acquiring, constructing, or improving a child care facility or costs incurred under a contract with a child care facility. Businesses also can claim a credit for 10% of certain child care resource and referral costs. The total credit is capped at $150,000 per tax year and may be claimed via Form 8882, Credit for Employer-Provided Childcare Facilities and Services.

The recently introduced bill would increase the credit amount to 40% of qualified child care expenditures generally. For small businesses, defined as those with 500 or fewer employees, the credit amount would be upped to 50% of expenditures. And for businesses paying expenses for child care facilities located in eligible census tracts — including rural and low-income areas — the credit would be set at 60%. The bill would cap aggregate qualified expenses at $2 million and the total credit at $1.2 million per tax year.

In addition to enhancing the credit, the bill would add a mechanism for businesses to claim the credit if they pool resources to acquire, construct, and operate a child care facility. And the bill aims to raise awareness of the credit by establishing a Treasury Department education program to inform businesses of credit eligibility and filing procedures.

“Finding quality affordable childcare is an unacceptable crisis in this country and we need to use all the tools we have to make childcare more accessible for all families,” said Schneider. “Incentivizing employers to provide childcare is a crucial step in that direction.”

Kustoff said that in his home state of Tennessee, $2.6 billion is lost annually because of “insufficient access to childcare.” The legislation would “make it easier for employers to hire and retain employees,” he explained.

“Child care is not just a family issue — it is a business issue,” said Radha Mohan of the Early Care & Education Consortium. “The expanded employer-provided child care credit will help ensure that businesses of all sizes in both urban and rural settings will have access to a skilled workforce.”

Paul Thompson of KinderCare Learning Companies called the bill “a targeted solution that provides working families with the support they need through expanded access to child care.” According to Thompson, the enhanced credit “will allow employers to make a sustainable investment in child care that increases access for their employees and their surrounding communities.”

For more on the current employer’s child care assistance credit, see the IRS’ Employer-provided childcare credit web page and Checkpoint’s Federal Tax Coordinator ¶ L-17870 et seq.