Using Childcare Tax Credits and the IRS Form 8882

Sick and tired of taxes? Us too. But whether you are an employer adding a childcare benefit for the first time or expanding your existing offering, there are tax implications to consider. We’re here to make things a little easier by breaking down the basics on all things taxes when it comes to childcare benefits.

Because even though they may not be the juiciest topics around, taxes and tax credits do matter. They can seriously move the needle for your balance sheet.

You may be wondering how tax credits work concerning childcare, and how your organization can leverage them while supporting your working families. Under the Internal Revenue Code Section 45F, the Employer-Provided Child Care Credit provides employers with the opportunity to receive tax relief when they provide childcare benefits to employees.

Upwards talks with employers every day about their employee childcare benefits options and where tax credits come into the picture. Email us or reserve a few minutes on the calendar to start the conversation.

Until then, let’s break down this hot topic and how adding a childcare-as-a-benefit program can help you secure substantial tax credits in the process.

How are tax credits an incentive for employers?

The federal government and many state governments offer tax credits that offset the costs of implementing a childcare benefits program. The goal here is to create added motivation for organizations like yours to provide childcare assistance to employees.

• Interestingly, these tax credits have been available for 20 years but have gone severely underutilized.
  • According to a Government Accountability Office report, the Internal Revenue Service estimated 169 to 278 corporate income tax returns were reported in 2016, the most recent complete year available. These claims added up to an aggregate estimated $15.7 to $18.8 million in Employer-Provided Child Care Credit. These figures indicate that only a small fraction of organizations utilize the valuable childcare tax credits available when employee childcare benefits are provided.
• The federal Employer-Provided Child Care Credit, for instance, offers employers a tax credit of up to 25% of qualified care expenditures, as well as 10% of qualified childcare resources and referral expenditures.
  • To claim the Employer-Provided Child Care Credit, employers can operate an on-site childcare care facility as one option. They may also contract with childcare benefits programs, including networks with home-based providers, to offer childcare services to employees and qualify for the credit. Businesses can claim up to $150,000 in childcare tax credits.
• The incentives to support working parents with employee childcare benefits programs are considerable and include:
  • productivity gains
  • increased job satisfaction
  • higher retention
  • lower absenteeism rates
  • more competitive recruitment
  • the Employer-Provided Child Care Credit/IRS Form 8882

Childcare tax credits in-depth

For many employers, deciding whether to implement childcare benefits for employees is a complex organizational calculation. And childcare tax credits play at least some role in the final tabulations.

• The U.S. Chamber of Commerce created a guide to help employers navigate childcare assistance and tax credits.
  • It is important to note that employers of any size and companies of all types can claim the Employer-Provided Child Care Credit by filling out IRS Form 8882. The 25% credit is for qualifying expenses that include amounts paid to contract with licensed childcare programs, which encompass home-based providers. Additionally, expenses incurred when an employer builds or procures, then operates an in-house/on-site childcare center are covered in the 25% credit. Organizations also have the option of claiming a 10% credit for spending connected to contracting with a third party referral service.
• The U.S. Chamber of Commerce guide outlines the practical support that employers can provide to their employees when they contract with a third party company. These third parties can offer a number of services to strengthen childcare benefits packages, including:
  • Supplying recommendations and service directly to working parents to assist them with finding childcare options that fit their needs.
  • Setting up and administering an employer subsidy/stipend program in which employers can help offset childcare costs for employees.
  • Facilitating a backup care program where specific childcare providers are able to provide care in the event that an employee’s regular childcare plans are altered.
  • Managing caregiver partnerships by securing access to a specified number of seats set aside at a childcare provider strictly for families from that employer.
• According to a survey from the Bipartisan Policy Center and Morning Consult, over half (57%) of working parents report that their childcare responsibilities routinely impact their work.
  • The majority of parents confirmed that childcare duties often or always had an impact on their work. It is not speculation to say that members of your workforce who are parents deal with childcare distractions on a regular basis, which negatively impacts their productivity. The current status quo must be considered when weighing whether an employee childcare benefits program is worth it for your organization. The financial advantages of offering employer-sponsored childcare, which include childcare tax credits, also need to be factored in.

How to offer childcare benefits to your employees

Now here’s the really exciting part of all this! You get to choose the childcare network and care benefits packages that will be a welcome lifeline to your working parents while also providing a valuable boost for your business.

Upwards offers an array of affordable childcare-as-a-benefit program options, customizable to best tailor them to fit your organizational needs.

When you combine the affordability of our childcare benefit plans, the available tax credits, and the inherent business gains listed above, now is the time to start implementing a care program for your deserving employees.

If you’d like to learn more, Upwards can help with an analysis of how much money your organization would save by implementing a childcare benefits program. The amount varies based on a number of factors, but we’re here to help you discover the substantial ROI available by adding a benefit to support working families with childcare.

You can reach our team of childcare benefits experts any time at benefits@upwards.com and find more information at Upwards.com.

Read more about how backup care works for your employees and helps them be as productive as possible for your organization.