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The government has been offering a mostly unused childcare credit to businesses for 20 years. It shows the abysmal support for working parents

February 24, 2022, 3:29 PM UTC

Many Americans are struggling to find and pay for childcare, so much so that the situation has been cited as one of the reasons for the ongoing worker shortage. 

Businesses can actually get up to $150,000 in tax credits annually for offering their employees access to childcare. But a new report from the Government Accountability Office finds that not many are using it. In fact, only about 11% of workers had access to childcare assistance through their employer. 

That mirrors a recent survey conducted this month by the Harris poll for Fortune that found only 10% of workers report their employer currently offers some type of childcare assistance.

The struggle for families to find childcare, and for childcare businesses to stay open, has never been more dire. Nearly 16,000 childcare centers and licensed family childcare programs closed permanently as of March 2021—many after the onset of the COVID-19 pandemic led to increased operating costs, creating hiring challenges and volatile attendance rates. The increased scarcity and expenses have driven up costs for families by 5%, with the average price of childcare nationwide hitting $10,174 per child annually.

“For too long, America has failed to recognize childcare for what it is: an essential piece of our economic infrastructure,” Assistant Speaker of the U.S. House of Representatives Katherine Clark (D-Mass.) said in a statement Thursday about the GAO report. She noted that the childcare crisis costs the U.S. $57 billion per year in earnings, productivity, and revenue

The lack of affordable childcare has been cited as one of the factors in the ongoing worker shortage. Many working parents, especially those earning low incomes, are finding it increasingly difficult to afford childcare, which often results in one parent staying home. An employee making the national minimum wage of $7.25 per hour earns a monthly gross wage of $1,257. Full-time day-care costs can easily run around $1,300 per month, according to Emsi Burning Glass, a labor market data company. 

Few businesses, however, seem to be taking advantage of the tax credit that could help improve the situation. Enacted in 2001, the Employer-Provided Child Care Credit provides up to $150,000 a year to offset the costs for businesses offering on-site childcare, as well as for offering childcare through off-site providers or supplying access to referral services. 

Specifically, employers can cover up to 25% of expenses that go toward building an on-site day care for employees, as well as expenses incurred by contracting with a qualified off-site facility to provide childcare services. Employers can get up to 10% of expenditures related to providing childcare resources and referral services.

Families can save too under this credit. Parents who receive employer-provided childcare can generally exclude up to $5,000 from their taxable pay ($2,500 for married employees filing separate returns).

Yet only about 169 to 278 corporate income tax returns showed companies claiming the employer-provided childcare credit in 2016, the most recent complete year available, according to the GAO report. In total, the companies claimed between $15.7 million and $18.8 million in credits. 

However, the GAO report points out that many times it costs between $1 million to $3 million to build an on-site childcare center, and the $150,000 limit may be too low to really encourage employers to take this step. Additionally, the GAO reports that many employers misinterpret the credit as applicable only to expenses related to offering on-site childcare. 

As people have transitioned to remote work during the pandemic, some have raised concerns that on-site day-care and childcare centers may be less useful.

Biden’s Build Back Better plan was set to help provide much-needed support for both families with young children and childcare providers, but the legislative package remains stalled in Congress. And even if it moves forward, childcare initiatives may not make the cut. ​​

But Clark said Thursday that she was “eager” to put the GAO report’s findings into action to increase the use of this important tax credit.

“Businesses are a major piece of the puzzle when it comes to solving the childcare crisis, and this report clearly shows that more must be done so that our private sector partners can help bridge the care gap,” Clark said.

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