As it becomes increasingly difficult for companies to find workers in a tight labor market, many employers are looking to boost the corporate benefits offerings available to their employees. One of the most significant benefits that a company can provide to its employees is access to high-quality child care. Employer-provided child care (EPCC) increases employee productivity, promotes loyalty and retention and creates a better workplace environment. In addition to the improvements in these areas, EPCC can also provide businesses and their owners with substantial tax savings.
Employers that provide or sponsor child care for their employees can claim a federal credit of 25% of qualifying expenditures, up to a maximum credit amount of $150,000 per year (however, any amount taken as a credit cannot also be deducted from federal taxable income). In addition, state tax credits for EPCC are available in 18 states, including a credit for businesses located in Georgia of up to 75% of direct costs. The Georgia credit can offset up to 50% of the taxpayer’s income tax liability for the year, and any excess amounts can be carried forward up to five years. Qualifying expenditures include the cost of acquiring and operating an on-site facility, or amounts paid to contract with a licensed child care program (including home-based providers). The federal and state credits, coupled with the tax savings from deducting a portion of the child care expenditures, can yield an after-tax cash surplus – that is, the tax savings can more than offset the cost of providing the child care.
For additional guidance on the tax implications of EPCC and whether offering this benefit might be right for your business, please contact your Bennett Thrasher Tax advisor by calling 770.396.2200.