TAX BENEFITS FOR CHILDCARE EMPLOYERS
On-Site Child Care
Businesses can receive a federal tax credit equal to 25% of expenses for employee childcare. The maximum credit allowed per year is capped at $150,000.
To see eligibility & application visit https://www.irs.gov/businesses/small-businesses-self-employed/employer-provided-childcare-credit
Contracting for Child Care
Businesses can contract with a childcare program to provide child care for their employees or help make it more affordable. As with on-site childcare, businesses can receive a tax credit equal to 25% of expenses capped annually at $150,000.
To see eligibility & application visit https://www.irs.gov/businesses/small-businesses-self-employed/employer-provided-childcare-credit
Help Families Find Child Care
Businesses can receive a 10% tax credit for contracting with Child Care Resource and Referral Agencies (e.g., NJ’s CCR&Rs serve every county) to help families find child care that works within their budget.
To see eligibility & application visit https://www.irs.gov/businesses/small-businesses-self-employed/employer-provided-childcare-credit
TAX SAVINGS FOR CHILDCARE EMPLOYEES
Tax-Free Payments for Child Care
Employers can set up Dependent Care Assistance Plans (DCAPs), which are flexible spending accounts that enable employees to set aside up to $5,000 per year in pre-tax earnings for childcare expenses.
Learn more at https://www.ffyf.org/resources/2024/03/dependent-care-assistance-program-dcap-overview/
Federal Child and Dependent Care Tax Credit (CDCTC)
When you send your employees their W-2 at tax time, remind them if they have children for whom they pay for childcare services, they can claim the CDCTC.
Learn more at https://www.irs.gov/newsroom/child-and-dependent-care-credit-faqs
NJ Child and Dependent Care Tax Credit
For NJ families with income of $150,000 or less, there is a NJ childcare tax credit that is a percentage of the taxpayer’s federal child and dependent care credit. The credit varies according to the amount of the taxpayer’s New Jersey taxable income.
For more information, visit https://www.nj.gov/treasury/taxation/depcarecred.shtml
FREE TAX HELP FOR EMPLOYEES
Let Employees Know that They May Qualify for Free Tax Help!
The IRS runs the Volunteer Income Tax Assistance (VITA) program, which offers free basic tax return preparation to eligible individuals. The program is staffed by IRS-certified volunteers who are trained to assist taxpayers with their tax returns.
Eligible Individuals:
- People who earn $64,000 or less
- Individuals with disabilities
- Limited English-speaking taxpayers
VITA sites are operated by IRS-certified volunteers. Preparing tax forms can be confusing and frustrating. Free help from IRS-certified retirees can help take the stress out of the tax preparation and filing process.
- IRS Volunteer Income Tax Assistance (VITA) web site
- IRS infographic on VITA services
- Locate a local VITA office
TAX SAVINGS CALCULATOR
Here’s a calculator to help employees figure out tax savings by utilizing DCAP benefits. It’s always a good idea to consult with a tax professional, but conceptually, there are savings to be realized through the tax code for employers who wish to assist their employees with childcare affordability.
Additional Resources:
- Employee Child Care Tax Incentives – Federal & State Tax Incentives
- Employer Child Care Tax Incentives 2022 – Expanding the availability & affordability of childcare
- IRS Publication 503, Child and Dependent Care Expenses
- IRS Instructions to fill out Form 2441, Child and Dependent Care Expenses
- IRS Brief Description of the Child and Dependent Care Tax Credit and FAQs
- New Jersey Child Care Tax Credit
- The Business Case for Early Education Investments – Childcare as an economic driver for new jersey