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Form 8882: What is the employer child tax credit?

Workers with children struggle to answer the call of duty at home when they’re occupied at work. Businesses nationwide have chosen to address this issue and bolster their workers’ family lives by offering child care benefits to their employees. If your business offers this benefit, you may be eligible for an employer child care tax credit that can significantly reduce your tax bill.

What is the employer child care tax credit?

Employers with qualifying expenditures toward child care facilities, resources or referrals for the benefit of their employees may be eligible to claim the Credit for Employer-Provided Child Care Facilities and Services, which falls under the provisions of general business credit. You can claim the credit at any time within three years from the due date of your return.

According to the IRS, the value of the credit amounts to 25 percent of child care facility expenditures plus 10 percent of the qualified child care resource and referral expenditures paid or incurred during the tax year. The IRS limits the credit to $150,000 per tax year. Note that you may need to further reduce the credit as cited in the No Double Benefit or Recapture of Credit provisions cited in IRS Publication 8882.

Employers can use Form 8882 to calculate the credit. Excluding S corporations, partnerships, estates or trusts, other taxpayers need not file Form 8882 itself but can report their credit directly on Form 3800.

While you could also conceivably deduct such costs as business expenses under the “ordinary and necessary” clause, the tax credit may result in a greater reimbursement of expenditures as small business tax credits directly reduce your tax liability rather than simply reduce taxable income like a deduction.

What constitutes qualifying childcare expenditures?

Qualifying expenditures are defined by the IRS as those that are paid or incurred for the following:

  • To acquire, construct, rehabilitate or expand property that:
    • Is used as part of a qualified childcare facility of the taxpayer
      • A qualified childcare facility is one that satisfies the laws and regulations of the state or local government in which it is located, as well as additional conditions laid out in Publication 8882.
    • Is either depreciable or amortizable
    • Is not part of the principal residence of the taxpayer or his/her employees
  • For operating expenses of a qualified childcare facility, including expenses for employee training, scholarship programs or providing greater compensation to employees with specialized childcare training skills.
  • In contract with a childcare facility to provide childcare services to employees of the taxpayer.
  • To provide childcare resource and referral services to employees of the taxpayer.

About the author

Manasa Reddigari

Manasa Reddigari has tackled topics ranging from computer software to home remodeling in her more-than-a-decade-long career as a writer and editor. During her stint as a scribe, she's been featured by MileIQ, Trulia, and other leading digital properties. Connect with her on copyhabit.com to find out what she's been writing about lately.

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The Growth Center does not constitute professional tax or financial advice. You should contact your own tax or financial professional to discuss your situation.