Employer-provided childcare credit
If you provide childcare services to your employees, you may be eligible for this general business credit. It covers qualified expenditures for a childcare facility and for childcare resource and referral.
The Employer-Provided Childcare Credit offers employers a tax credit up to $150,000 per year to offset 25% of qualified childcare facility expenditures and 10% of qualified childcare resource and referral expenditures. Find details in Internal Revenue Code (IRC) Section 45F.
How it works
The employer-provided childcare credit is limited to $150,000 per year. It equals 25% of the qualified childcare facility expenditures plus 10% of the qualified childcare resource and referral expenditures you pay or incur during the tax year.
The credit is an incentive for taxpayers to provide childcare services to their employees.
Who is eligible
To be eligible for the credit, an employer must have paid or incurred qualified childcare expenditures during the tax year to provide childcare services to employees.
Qualified childcare expenditures are:
- Costs associated with acquiring, constructing, rehabilitating or expanding property used as the taxpayer’s qualified childcare facility.
- Qualified childcare facility expenditures are operating expenses made by the taxpayer, including amounts paid to support childcare workers through training, scholarship programs, and providing increased compensation to employees with higher levels of childcare training.
- Qualified resource and referral expenditures which include amounts paid or incurred under a contract with a qualified childcare facility to provide childcare services to employees of the taxpayer.
Qualified childcare facility
A qualified childcare facility is a space that meets the requirements of all applicable laws and regulations of the state or local government where it’s located. This includes the licensing of the facility as a childcare facility.
The facility must also meet these conditions:
- The principal use of the facility must be to provide childcare assistance (unless the facility is also the principal residence, within the meaning of IRC Section 121, of the person operating the facility).
- Enrollment in the facility must be open to employees of the taxpayer during the taxable year.
- If the facility is the principal trade or business of the taxpayer, at least 30% of the enrollees of the facility must be dependents of employees of the taxpayer.
- The use of the facility (or the eligibility to use the facility) must not discriminate in favor of highly compensated employees (within the meaning of IRC Section 414(q)).
Qualified childcare facility expenditures
Qualified expenditures for a childcare facility are amounts paid or incurred to:
- Acquire, construct, rehabilitate or expand property that is:
- To be used as part of a qualified childcare facility of the taxpayer
- Depreciable (or amortizable) property
- Not part of the principal residence (within the meaning of IRC Section 121) of the taxpayer or any employee of the taxpayer
- Operate a qualified childcare facility of the taxpayer. This includes training employees, providing scholarship programs, and providing increased compensation to employees with higher levels of childcare training.
Qualified childcare facility expenditures do not include expenses over the fair market value of such care.
Qualified resource and referral expenditures
These are amounts paid or incurred under a contract to provide childcare resource and referral services to your employees. The provision of the services (or the eligibility to use the services) must not discriminate in favor of highly compensated employees (within the meaning of IRC Section 414(q)).
How to claim the credit
To claim the credit, use Form 8882, Credit for Employer-Provided Childcare Facilities and Services.
The credit amount claimed may not exceed $150,000. You may deduct eligible expenditures that exceed the amount of the credit determined. See Form 8882 General Instructions.
No double benefit allowed
You must reduce these items by the amount of the credit determined:
- The basis of the qualified childcare facility
- Certain business deductions and credits
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Credit: irs.gov
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