State Tax Incentives for Employers Providing Child Care

At the federal level, an income tax credit is available as an incentive to businesses to provide child care for their employees. Generally, the federal income tax credit amount is 25% of qualified child care expenses, plus 10% of qualified child care resource and referral expenditures. The annual maximum is $150,000.

At the state level, during the COVID-19 pandemic, New York decided to expand its income tax incentives for employer-provided child care.

First, as part of the state budget enacted in 2021, New York enhanced the Excelsior Jobs Program with an expanded investment tax credit component of up to 5% for child care services projects, as well as a new child care services tax credit for up to 6% of net new child care services expenditures for the operation, sponsorship, or direct financial support of a child care services program.

Further, the budget bill also enhanced New York’s employer provided child care credit for tax years beginning after 2021 by doubling the credit percentages to 50% of qualified child care expenditures and 20% of qualified child care resource and referral expenditures, plus increasing the cap for each taxpayer to $500,000.

When including these enhancements in the 2021 budget bill, the state noted that the incentives would support working parents, particularly working women, who disproportionally leave the workforce to care for families.

Other states also offer various tax incentives to employers related to the provision of child care, and a number of these are highlighted below.

Arkansas

Arkansas allows an income tax credit for businesses that provide employee child care services. The credit is equal to 3.9% of the annual salary of the employees who are exclusively employed to provide the child care services.

Colorado

There are a couple of income tax credits in Colorado. One is for taxpayers that invest in child care centers, family care homes, and employer child care facilities.

Another credit is available to taxpayers that contribute to child care providers. The credit is equal to 50% of the total value of the contribution, up to a maximum of $100,000.

Connecticut

Connecticut also has a relevant income tax credit, which applies to businesses investing in day care facilities for Connecticut employees or subsidizing Connecticut employees for in-state child care. The credit allowed for the year is 5% of the amount paid.

Georgia

In Georgia, credits are allowed to taxpayers who provide or sponsor child care for their employees (generally equal to 75% of the cost of operation to the employer) and to businesses that purchase property to construct, expand or operate a child care facility (the credit amount is 100% of the cost of the qualified property, to be claimed at 10% per year over 10 years).

Illinois

Illinois has an income tax credit for manufacturing businesses that provide on-site dependent care assistance to employees, generally equal to 5% of the expenditures.

Kansas

Kansas allows an income tax credit for businesses that purchase child care services for, or provide child care services to, employees. The credit is also available for businesses that provide assistance to employees in locating child care.

Louisiana

Louisiana provides an income tax credit for individuals and businesses that own or operate a child care facility, businesses that provide financial support for child care facilities and employee child care services, and businesses that donate to child care resource and referral agencies.

Mississippi

In Mississippi, an income tax credit is available to individuals and businesses that provide employee dependent care benefits, generally equal to 50% of qualified expenses.

New Mexico

New Mexico allows an income tax credit for businesses that provide employee child care services. The amount of the credit is generally equal to 30% of the total expenses (up to $30,000 annually).

Rhode Island

Rhode Island allows an income tax credit for businesses that pay for employee adult or child day care services or that provide property for child day care facilities. The amount of the credit generally equals 30% of applicable expenses, up to a maximum of $30,000.

South Carolina

A South Carolina income tax credit is provided for employers that establish or operate a child care facility.