Child care tax breaks are underused: Congressional report

Lack of available child care could cost the US economy up to $329 billion over the next 10 years, a 2025 Bipartisan Policy Center report found.

An untapped way for families and the businesses that employ them to save on these costs may be existing tax incentives, according to a study. new report From the Joint Economic Committee of the US Congress – Minority.

According to the report, only 13 percent of private sector employees can benefit from child care benefits through their employers. Additionally, the report notes that existing child care tax incentives are underutilized or difficult for businesses and their employees to take advantage of.

Eligible workers can cover childcare expenses by claiming: child and dependent care tax credit, or CDCTC.

CDCTC It allows families who meet certain criteria to offset a portion of their child care and dependent care expenses against their federal income tax liability. The credit may partially cover the cost of care up to $3,000 for one qualifying individual and up to $6,000 for two or more qualifying individuals.

However, according to the report, only 12 percent of taxpayers with children benefit from the credit. Some eligible workers may have difficulty navigating the credit and therefore may not be able to claim it, while others may not qualify because they do not have qualifying expenses, do not owe federal taxes or earn too much money, the report said.

Businesses can establish a dependent care assistance program, or DCAP, account for employees. These accounts allow families to set aside up to $7,500 in pre-tax income for child care expenses. This money is not taxable as long as it is used for child care or other qualified expenses. According to the report, less than half of private sector employees can access these accounts.

A separate employer-provided tax credit, known as 45F, helps businesses offset the cost of providing child care. Businesses that invest in child care for their employees by building and operating a child care facility or partnering with a child care provider can deduct 40% (or 50% for small businesses) of eligible expenses from their tax liability. This can save up to a maximum of $500,000 annually in taxes through a non-refundable credit, or up to $600,000 for small businesses.

Despite these savings, less than 1% of corporate returns used the 45F program, according to the report, which cited the most recent available tax return data from 2016.

According to an example scenario in the report, a hypothetical business could save $820,000 in taxes over five years by fully utilizing existing tax incentives for child care and generate more than $8 million in return on investment through reduced employee turnover and increased productivity. Meanwhile, a parent working this job can save almost $10,000 over five years.

The report came after Democratic Senator Maggie Hassan of New Hampshire, the committee’s ranking member, said: proposed a bill with Republican Sen. Dan Sullivan of Alaska to create a commercial child care liaison at the IRS who would educate businesses about available child care tax incentives.