How companies can save money by providing employee child care benefits

While there are certain tax credits for families with children, the resulting savings can be underwhelming. The Child and Dependent Care Credit is only worth $1,050 for one child or $2,100 for two children. 

With the cost of care for one child averaging about $9,000, the credit only makes up just over 10% of the cost.

Employers can make a difference

Compared to the tax credits offered to families, there’s an even greater opportunity for employers to help their employees with children manage their child care expenses.

For the tax-savings conscious employer, the Employer Child Care Tax Credit (IRS 8882) allows businesses to earn a credit of up to $150,000 if they either: a) build an employer-owned child care center b) contract with an existing child care center to provide care or c) provide child care resources or referral services to their employees.

One of the most difficult parts of earning the Employer Child Care Tax Credit is a reliable method of tracking the expenses related to the child care resources they provide to their employees.

With Finli, employer contributions to employee child care expenses are automatically tracked and categorized, making it easier than ever to account for those expenses come tax time.

Stipends aren’t just for tuition

While employers have begun to offer their employees subsidies towards their children’s tuition expenses, the practice has yet to catch on with child care expenses. In fact, employers are eight times more likely to offer tuition subsidies than pay for child care expenses.

With that in mind, consider this: the average cost of daycare in the United States is now more than the average cost of in-state college tuition (daycare is $9,589 per year, compared to $9,410 per year for in-state college).

Aside from the Employer Child Care Tax Credit, employers can also contribute to their employee’s child care expenses through a stipend of up to $5,000 per child. One of the most important benefits of the stipend is that the money does not count toward the employee’s income come tax time.

Everybody wins

The benefits for employers who prioritize making child care more manageable for their employees are powerful.

Not only is it possibly the single best benefit in terms of improving employee retention, employer-sponsored child care programs and subsidies also help make employees feel more productive. These programs also make workplaces more mom-friendly, as new moms with comprehensive child care benefits will likely take less time away from work, not only improving a company’s bottom line, but also ensure that a mother’s career trajectory is not adversely affected from an extended absence from work (see the motherhood penalty).

Lori Shao