Seventy-three percent of your employees are working caregivers for children or an adult loved one. And, 59% of parents with children at home say they are more concerned now than ever before about the rising costs of child care.
While there are some safety nets out there to support working parents, they could use more help, especially as the cost of living continues to rise. Child tax credits help reduce the tax burden for families, but it’s often not enough. Employers can help by offering child care benefits, and get tax credits of their own.
It’s important that working parents—and employers—know about the resources available to support the rising costs of child care in 2023.
The Child Tax Credit provides some relief
One way the government provides help for parents is the Child Tax Credit, which offsets some of the cost of child care by providing a financial credit. The Child Tax Credit for 2023 will follow the rules established in the 2017 Tax Cuts and Jobs Act—providing a tax credit of up to $2,000 per child aged 16 or younger. Also worth noting:
- The credit decreases by 5% of adjusted gross income over $200,000 for single parents and $400,000 for married couples.
- If the credit is higher than the amount of taxes owed, taxpayers may also receive up to $1,400 as a tax refund. This is known as the additional Child Tax Credit, or refundable Child Tax Credit.
- Other dependents—which includes children who are 18, as well as full-time college students ages 19-24—are eligible for a nonrefundable credit of up to $500 each.
The 2023 Child Tax Credit is a change from 2021, when the American Rescue Plan Act of 2021 temporarily increased the child tax credit for one year to up to $3,600 per child under age six, and $3,000 per child between the ages of 6-17.
The cost of child care is rising
While the Child Tax Credit does put extra money back in the pockets of working parents, it’s not enough. According to the 2022 Cost of Care Survey, 72% of parents report that they are spending 10% or more of their annual household income on child care. The majority of respondents, 51%, say they are actually spending 20% or more.
Prices for child care are up across the board compared to pre-pandemic levels. The average cost to care for one child in 2021 was:
- $221/week for a family care center (up from $177)
- $226/week for a child care or daycare center (up from $182)
- $694/week for a nanny (up from $565)
Working parents who employ a nanny to care for their children not only need to contend with rising costs, but also keep up with changes to the nanny tax.
The nanny tax: what it is, and who needs to pay it
Officially known as Publication 926 by the IRS, the nanny tax affects taxpayers who employ workers (such as a housekeeper, cook, or nanny) in their household. If the amount that the employer pays the worker exceeds a certain annual threshold, there are then tax implications for the employer.
For 2023, the income threshold is increasing to $2,600 for domestic workers like nannies—up from $2,400 in 2022. Working parents who exceed this limit must withhold taxes from their nanny/employee, including:
- Social Security
- Medicare taxes
- Federal taxes
- State income taxes
Your working parents also need to file quarterly tax returns with the IRS in order to pay these taxes.
Child care benefits for working parents
Clearly it’s expensive for your employees with young children at home. One way you can help ease the pain of rising child care costs is by offering employer child care benefits. The Credit for Employer-Provided Child Care Facilities and Services allows businesses to claim a tax credit of up to 25% of qualified child care expenses, as well as 10% of qualified child care resources and referral expenses. FYI, the credit is capped at $150,000. That means you would need to invest about $430,000 in child care benefits to receive the full credit.
Despite its name, the credit is not limited to brick and mortar child care facilities. Companies can also provide access to child care services and benefits. To qualify for the credit, any child care services would also need to be available to all employees, i.e., not just those in the executive suite and/or management level.
Some examples of child care benefits to offer your employees include:
- Access to Care: Providing employees with a Care Membership gives them access to the world’s largest network for finding and managing care for children, as well as seniors and pets. This allows your employees to “shop around” for a vetted caregiver that meets their needs in terms of experience, cost, location, etc.
- Backup Care: Employers can lower expenses for working parents who need last-minute care with Backup Care. This employer-subsidized benefit helps employees find care for their loved one when their regular care plan falls through.
- Child Care Discounts: Providers, like Care for Business, offer employers discounts to part-time and full-time tuition at child care centers nationwide.
- Tax Support: Employers can also provide their employees with access to HomePay, which connects them with experts for household tax and payroll needs.
You’ve no doubt heard the expression, “It takes a village to raise a child.” The same could also be said about child care. Employers who lend a helping hand by providing child care benefits can help ease the financial burden on their working caregivers, and also build company loyalty, and increase retention.
Learn more about how child care benefits can help you meet your retention goals.
