By Pamela Mendels If you are a small-business owner who has been wavering about whether to help your employees with child care, the federal government is about to offer you a good reason to make a commitment: lower taxes.
You may not have noticed Uncle Sam's gift because it came wrapped in the tax-cut legislation passed by Congress and signed into law in June, 2001. But the Child Care Infrastructure Act is now a reality and goes into effect on January 1, 2002. You might want to have your accountant figure out what the law could mean for you.
Here's why. The law provides a handsome tax credit -- 25% of eligible child-care expenses up to a maximum of $150,000 yearly -- to employers who help create child-care services for their employees. The details of the law are to be worked out in the coming months by the IRS, but the credit could be applied, for example, to the cost of constructing a child-care center.
You might say that's fine for big businesses, but few startup companies could afford such an undertaking. True, but the beauty of this tax credit is that it also applies to child-care options that might very well be attractive to small businesses. The credit might be used to cover expenses incurred by consortiums of employers who work together to provide child care. The credit could also be available for the expense of reserving slots in a child-care center.
TAX CREDITS. The idea behind the bill was to give employers an incentive to help solve a shortage of quality child care in the U.S., says Kate Sparks, legislative director to Sen. Herb Kohl, a Wisconsin Democrat and the moving force behind the legislation.
If offering child care is still too big a step for you, the law has another feature you might want to consider. You can receive a 10% tax credit for what you pay to offer employees child-care "resource and referral." This is a service that gives employees information about community child-care resources, and can be invaluable for employees who need to learn a lot, in a very short time, about what's available for their children.
I'd like to give you a rough idea of what the credit could mean for you and your employees. Let's look at "backup," or emergency, child care, an increasingly popular benefit at larger companies. I know. Just this week I checked out a backup center, complete with an indoor tree house, that my employer belongs to. The facility may prove to be a lifesaver in August, when I face a gap between the end of summer camp and the start of the school year.
Backup care can be tremendously helpful to employees, while costing employers far less than full-time care. Let's assume the IRS accepts employer backup-care payments as eligible for the tax-credit program. ChildrenFirst Inc., which runs 28 backup centers in 12 states, typically charges companies with fewer than 100 employees about $22,000 a year for center use, says Rosemary Jordano, CEO and founder of the Boston-based company. You do the math: The credit could lop $5,500 off your federal tax bill. "For small companies this could make the difference between choosing to offer a child-care benefit and not," says Sparks.
SENSE AND SAVINGS. Still, it's often not just a matter of money but a feeling that child care is someone else's problem that prevents employers from offering a benefit, according to Faith Wohl, president of the Child Care Action Campaign, a New York City-based advocacy group. "I'm not convinced that [many] business leaders understand how fragile the underpinnings of child care are," she says.
If you are a business owner who does understand, but dollars have been your "issue," you now have reason to get off the dime. You could end up with a smaller tax bill -- and some grateful employees. Pamela Mendels is based in New York City. She wrote about small business and had a workplace advice column at Newsday, and has written about workplace matters for BusinessWeek, Working Woman, and the Web site iGuide.