Key Podcast Highlights

Should You Provide Dependent Care to Your Employees?

A recent study found that there was a growing problem for most business owners and it was that their employees are having childcare issues. As a result of this, these businesses are losing productivity. This means that providing dependent care can help combat this issue and keep your operation as productive as possible.

What Are Three Things You Could Be Doing to Help Your Employees With Dependent Care?

1. Reimburse your employees. You could spend up to $5,000 per employee, per year to reimburse them for qualified childcare expenses like preschool, day camps and afterschool programs. With $5,000 per employee, you get a deduction and don’t get taxed.

2. Utilize the employer provided childcare tax credit that’s been around since 2001. You can get giant tax credits up to $150,000 annual credit against the taxes that you owe if you go to the effort of building or operating your own childcare facility. Some businesses partner with other local businesses and have shared the cost of renting or building out or operating a childcare facility. By doing that, they get a tax credit on their returns for doing, basically as much as up to 25% of your expenses…

3. Educate your employees. Your employees are likely eligible for the independent childcare tax credit, which they can take individually against their returns.

Transcript

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Gene (00:03):

Hey everybody, it’s Gene Marks and welcome to another episode of the Hartford’s Small Biz Ahead podcast. Thank you so much for joining me. Dependent care is a huge benefit that we should be providing to our employees, right? A recent study, that was released found that, there was a growing problem for most business people that are out there. You’ve got employees that have childcare issues. They lose work and lose productivity because of it. There are some studies that show that child care takes substantial time away from work itself. And most other people agree that when, you’ve got your employees that have young children or even dependent parents that need them, all of this stuff is not only very, very stressful for an employee, but again, it’s very distracting and takes them away from their jobs.

Gene (00:55):

So there’s really an incentive for us as employers to do something about this. Some states themselves are talking about providing some help for employers with dependent care, but before it really kind of gets to that level, I want you to know that providing dependent care benefits is not as hard as you think. In fact, there are three things that you could be doing to help your employees with their dependent care. And let me explain to you what those three things are. Okay? The first, is you could be reimbursing your employees. You can spend up to $5,000 per employee per year to reimburse them for qualified childcare expenses like preschool and day camps and afterschool programs. $5,000 per employee, you get a deduction and they don’t get taxed.

Gene (01:52):

Now, I realize that’s money that’s out of your pocket, but you get a tax deduction for doing it, and no one’s saying that you have to spend the full $5,000. I mean, you could be offering a thousand or two for each employee to help them out, but something, any extra cash that you can be giving them to reimburse them for dependent care expenses would really, really help them. So that’s number one. Number two, I’m not sure if you’re aware of the employer provided childcare tax credit. It’s been around since 2001. You can get giant tax credits like up to $150,000 annual credit against the taxes that you owe if you go to the effort of building or operating your own childcare facility. Now, before you freak out on me, I’m not saying you have to do it all on your own. I have some clients, and I know some businesses that have partnered with other local businesses and together have shared the cost to like rent or build out or operate a childcare facility. And by doing that, they get a tax credit on their returns for doing, basically as much as up to 25% of your expenses…

Gene (02:59):

Can be taken as a tax credit against the cost that you’re spending. There’s another tax credit available that’s part of that same or another part available under that childcare tax credit. You can get up to 10% of your expenses if you just contract with somebody else. So say there is like a childcare facility down the street and you’re like, “hey, we’re gonna pay these guys a certain amount of money so that our employees can send their kids to that child care to help out your employees.” Whatever you pay, you can take 10% of that and put that as a tax credit. So you get a credit against the taxes that you owe. So again, you can get a tax deduction for reimbursing up to $5,000 to your employees for dependent care expenses, childcare expenses, and/or you can get a tax credit if you provide your own childcare facility or contract out with another childcare facility.

Gene (03:54):

And there’s a third way that you can help your employees, and that’s by just educating them. Your employees are likely eligible for the independent childcare tax credit, which they can take individually against their returns, their tax returns on Form 8812 is what it is. So if there’s childcare expenses that are qualified like daycare and babysitters and afterschool programs or day camps, they can get a tax credit to help them pay for that. I don’t know if you’ve ever seen out this form, but it ain’t easy. It’s kind of complicated to figure it out. And I’m a CPA. So what I would recommend doing, ’cause again, I’ve seen other clients do it is, you can hire a CPA somebody from the outside who then is available for your employees to consult with them and help them fully take advantage of their individual tax credit on their individual tax returns.

Gene (04:49):

Now remember, they can’t take this tax credit if you’re reimbursing ’em, so it has to be over and above. But think about it, you can be reimbursing your employees up to $5,000 and they can also, whatever they’re not getting reimbursed for, they can get tax credits for some of their additional costs as well if they just knew how to get it. And what you can do is you can help them get it by providing some educational assistance. In other words, having like a CPA or somebody help them out. Those are three ways that you can help your employees take advantage of childcare benefits. Reimburse them for the cost up to $5,000, build your own facility or contract out with a facility and get a tax credit for doing it. Or at the very least, educate your employees, hire a CPA to come on in and educate your employees how to maximize their independent, their individual childcare tax credit so they can get the maximum back on their individual returns. The more help that you give your employees understanding this stuff, the more money they get back, the more help that they can pay for and that the government will help them pay for and you help them pay for. Come on, the less stress they’ll have, the more time they’ll have…

Gene (05:56):

On the job, the less distracted they’ll be, the more productive they will be. So as child care and dependent care becomes so much of a big issue, a big requested benefit, it’s something that we as employers, we really need to be addressing. And these are three ways that you can be doing that, and I hope that you take this advice and use one, two, or all three of those ways in some way, shape, or form. My name is Gene Marks. You have been listening to the Hartford Small Biz Ahead podcast. If you need any advice or help or tips in helping to run your business, visit us at SmallBizAhead.com or SBA.Thehartford.com. I hope this advice helps a little bit. I’ll be back next week with another piece of advice to help you run your business. Take care.

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