Child Care Tax Credits: An Opportunity for Employers and Their Workforce
Recruiting and retaining employees continues to be a challenge for businesses across Georgia. At the same time, the rising cost of child care is making it increasingly difficult for many working parents to remain in the workforce.
Existing federal and Georgia tax incentives may offer employers an opportunity to address both challenges.
The Cobb Community Foundation (CCF) has launched an initiative to increase awareness of federal and Georgia child care tax credits that can help employers support their employees with child care expenses. While these credits can offer significant benefits to businesses and their employees, many employers, and even some of their CPA advisors, may not be familiar with how they work.
Employers do not need to own or operate a child care facility to take advantage of available incentives. Depending on the structure of the program and applicable requirements, an employer may be able to help cover an employee’s child care costs by paying benefits directly to a qualified child care provider selected by the employee.
Available tax incentives include:
- Federal Employer-Provided Child Care Credit:** IRC §45F provides a federal income tax credit for qualified child care expenditures. The credit is generally equal to 40% of qualified expenditures, increasing to 50% for eligible small businesses, subject to current annual limits of $500,000 and $600,000 respectively.
- Georgia Employer Child Care Tax Credit:** O.C.G.A. §48-7-40.6 provides a Georgia income tax credit equal to 75% of qualified child care expenditures, subject to a cap of 50% of the employer’s Georgia income tax liability.
- Potential Combined Benefit:** Depending on an employer’s individual facts and circumstances, the combination of federal and Georgia tax credits and applicable deductions may significantly reduce the employer’s net cost of providing child care assistance and can return more in tax benefits to the employer than the amount paid in child care benefits.
For employers looking for new ways to attract and retain talent, these provisions could make child care assistance a more financially viable employee benefit.
Addressing a Workforce Challenge
CCF has long recognized the cost and availability of child care as significant barriers preventing individuals from entering or remaining in the workforce and achieving greater financial stability. When CCF board member Rick Bennett, founding partner of CPA firm Bennett Thrasher, alerted the organization to the availability of the tax credits, the Foundation saw an opportunity to help remove this barrier.
The goal is to create a potential win-win: employees receive help managing one of their largest household expenses, while employers gain another tool for recruiting and retaining talented workers.
CPAs can play an important role by helping business clients understand the credits, evaluate whether they qualify and determine whether an employer-sponsored child care benefit makes sense for their organization.
Resources Coming Soon
CCF has been working with CPAs, attorneys, HR professionals and child care experts to better understand the available incentives and make implementation easier for employers.
As part of the initiative, CCF has engaged Quality Care for Children to develop practical resources, including sample policies and forms that employers can use when considering or implementing a child care assistance program.
Additional communications and resources are expected to roll out in September and October. The Cobb Chamber in partnership with the Cobb Community Foundation will also host an event on Monday, November 16 focused on childcare, workforce and the tax credits that connect them.
GSCPA members are encouraged to familiarize themselves with these provisions and consider whether the opportunity may be relevant for their business clients. As with any tax strategy, eligibility and the ultimate tax benefit will depend on each employer’s specific circumstances.