When it comes to childcare options for working parents, corporate childcare solutions like employer sponsored childcare and onsite corporate childcare are usually presented as especially beneficial for employees and their children. However, these programs are often advantageous to employers as well: corporate daycare has been found to increase employee loyalty, decrease maternity leaves and improve concentration on the job. But do the benefits match the cost of these programs? With the various tax benefits available to employers with onsite childcare, the answer is often yes.
Business Expenses
Employer sponsored childcare can be claimed as a business expense in a number of different ways. When the program is first being started, any start-up and investigatory expenses, such as advertisements and consultant services, can be amortized for sixty months or more under 26 U.S. Code 195, which is used for start-up costs. Similarly, any costs of acquiring, building or remodeling a building to serve as a corporate childcare center can be depreciated under 26 U.S. Code 168, which is designed to help recover costs at an accelerated rate. There are also several tax credits available for the childcare itself, referrals and more, which can be best identified by an accountant. Finally, employers can qualify for deductibles for promoting a healthy business under 26 U.S. Code 162, which is used for trade and business expenses. However, even if a company establishes employer sponsored childcare offsite, or simply helps pay off childcare expenses, the cost may still be deductible.
Tax-Exempt Status
Due to the dearth of affordable childcare, an employer sponsored childcare center may be able to establish itself as a tax-exempt organization by applying to the IRS. If the move is successful, the employer’s expenses may be considered charitable donations, giving them access to different deductibles. However, this move should be carefully considered, as the center will need to be open to the public to be tax-exempt.
Dependent Care Assistance Plans
A Dependent Care Assistance Plan, or DCAP, refers to an employer benefit plan that provides a tax-free way for employees to pay for certain expenses, while also reducing an employer’s taxes. Childcare is one such expense, and a DCAP account can be used to set aside up to $5000 in qualified expenses per year. However, because DCAP affects other factors, including social security benefits and unemployment compensation, companies and employees should carefully consider if this is the best option for them.
Employer sponsored childcare is a great option for parents, especially as more and more working parents find it necessary to turn to daycare centers to support their children. However, the benefits for employers, both financial and otherwise, are worth considering. Contact your accountant and an independent corporate daycare provider today to begin discussing this option.
