A recent study released by a small business association underscores a growing problem for business owners: Child care issues are impacting their ability to grow and retain good talent.
In fact, 59% of respondents to the study said that lack of access to affordable child care is hindering their business growth; 56% reported that their own childcare issues have forced them to take “substantial time” away from their companies. Another study found that almost one in five mothers were forced to change jobs or leave the workforce in the past year, often due to lack of child care.
As business owners, we need to respond to this issue. Many of our employees come from families with two working parents. People don’t just need time off to visit schools and take their kids to the doctor. They also need financial help to pay for day care, summer camps and other activities, especially as some school systems—most recently Pennsylvania as well as many other states—are passing or considering legislation to offer four-day school weeks in order to attract more teachers.
Helping working parents also pays off: A Care.com survey of human resources leaders found that offering childcare benefits has a positive influence on productivity and boosts recruitment and retention.
What can we do to support our employees who are dealing with significant childcare costs? There are three strategies that you should consider, all which provide help from the federal government.
1. Reimburse for childcare expenses.
The first is reimbursing for childcare expenses. The IRS allows you to reimburse an employee for up to $5,000 per year to help pay for qualified childcare expenses, which includes preschool, summer day camp and after-school programs. To do this, you’d need to start a formal plan that’s available to all your employees (not just yourself and family members). From there, decide how much you’ll reimburse each year—it doesn’t have to be the full $5,000. You get a deduction for the reimbursement up to that amount, and the employee doesn’t get taxed.
2. Build your own childcare facility.
Depending on your resources, you may want to consider providing your own childcare facility, or paying for access to an existing one. Thanks to the Employer-Provided Childcare Tax Credit, which was established in 2001, you can get up to a $150,000 annual credit against the taxes you owe to help offset the costs of building and operating your own childcare facility or paying for access to another facility.
To take advantage of this credit, you can claim 25% of your expenses for providing onsite child care or contracting with a qualified offsite childcare facility. This includes the costs of acquiring, constructing, rehabilitating or expanding any property used as a qualified childcare facility. You then need to provide training for employees, scholarship programs for children, or offer higher salaries for advanced childcare professionals.
I know that this might sound like a big effort, but some companies partner together to do this and share costs. Another alternative is contracting with a qualified facility. You can also claim 10% of your expenses if you contract with a resource and referral service that helps employees find child care.
3. Educate employees on tax credits and other benefits.
If an employee has qualified childcare expenses (i.e. day care, babysitters, after-school programs, day camps) beyond what you’re reimbursing or providing through a facility, they can also take advantage of the independent childcare tax credit. This credit can be used to offset the taxes they owe.
But have you dug deeper into the credit calculation? Hold on to your seat.
You’ll see what I mean when you take a look at Form 8812, which taxpayers must complete in order to claim the credit. There are numerous eligibility requirements and income limitations that make for a pretty complex calculation. Some legislators are pushing for an expansion of the credit to cover more families, which is great, but will create more questions and add complexity.
So how can you help your employees? You can educate them.
Consider paying for a tax professional or certified public accountant to consult and teach employees who may be eligible on how to utilize the tax credit. I have some clients that pay their accountants to do this and their employees are grateful for the added help.
Healthcare, retirement and flexible work arrangements (including vacation) lead the list of the most requested employee benefits. But childcare benefits are also growing in popularity. In these times of tight labor, the strategies above can help you provide childcare benefits to your people, which in turn will lead to a more productive, loyal and—hopefully—expanding workforce.
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