Tax Byte
IRS Explains the Employer-Provided Childcare Tax Credit on New IRS.gov Page (IR-2024-34)
IRS has provided several plain language explanations on claiming the employer-provided childcare credit (§45F). An eligible employer must have paid or incurred qualified childcare expenditures to provide childcare services to employees. The credit is 25% of qualified childcare facility expenditures plus 10% of qualified childcare resource and referral expenditures, limited to $150,000 per year. The credit is claimed on Form 8882, Credit for Employer-Provided Childcare Facilities and Services.
Qualified Childcare Expenditures
Qualified childcare expenditures are:
- Costs associated with acquiring, constructing, rehabilitating or expanding property used as the taxpayer’s qualified childcare facility;
- Qualified childcare facility expenditures are operating expenses made by the taxpayer, including amounts paid to support childcare workers through training, scholarship programs, and providing increased compensation to employees with higher levels of childcare training; and
- Qualified resource and referral expenditures which include amounts paid or incurred under a contract with a qualified childcare facility to provide childcare services to employees of the taxpayer.
Requirements for a Qualified Childcare Facility
These are the requirements for a qualified childcare facility:
- Principal use must be to provide childcare assistance (unless it is a person’s primary residence)
- Must be open to employees during the year
- If the facility is the principal business of the taxpayer, at least 30% of the enrollees must be dependents of the taxpayer’s employees
- No discrimination in favor of highly compensated employees (§414(q))
Qualified Childcare Facility Expenditures
Qualified childcare facility expenditures are amounts paid or incurred:
- Acquire, construct, rehabilitate or expand property that is:
- To be used as part of a qualified childcare facility of the taxpayer
- Depreciable (or amortizable) property
- Not part of the principal residence of the taxpayer or any employee of the taxpayer
- To operate a qualified childcare facility of the taxpayer. This includes training employees, providing scholarship programs, and providing increased compensation to employees with higher levels of childcare training.
Qualified Resource and Referral Expenditures
Qualified resource and referral expenditures are amounts paid or incurred under a contract to provide childcare resources and referral services to your employees. The provision of the services (or the eligibility to use the services) must not discriminate in favor of highly compensated employees.