Episode 6: Missouri, Minnesota and New Mexico Childcare Tax Credits and Grants for Employers

On this episode of the Tax Break Breakdown, Greg and Doug dive into the tax breaks available in different states, focusing on Missouri and Minnesota. They discuss the challenges and opportunities in accessing these tax incentives, highlighting the importance of staying informed and proactive. Join them as they break down the details of Bill SB 742 and share valuable insights for businesses seeking tax relief.

Transcript

Speaker 1: 0:02

Welcome to the Tax Break Breakdown with your hosts, Greg and Doug. Sit back and relax while they review current and upcoming childcare tax credit programs employers can take advantage of. Now onto the show.

Speaker 2: 0:16

Hey everybody, welcome to the Tax Break Breakdown with Greg and Doug. This is episode six titled Missouri, Minnesota and New Mexico Child Care Tax Credits for employers. You may notice something I have a new microphone. Doug always has the same one as last time. Yes, this is the new microphone.

Speaker 1: 0:41

I think I may actually have a new one now. I don't know if we've had this, because this is new too. Oh, is this?

Speaker 2: 0:45

the one from the onsite a couple of weeks ago. Yeah, this is the one from.

Speaker 1: 0:49

LA.

Speaker 2: 0:50

So all you listeners are getting we've leveled up our game.

Speaker 1: 0:54

It's a special day, yes.

Speaker 2: 0:56

We've leveled up our game. So it's been a while since our last episode. Doug and I have been traveling for work and there are some interesting things that have happened over the last. I think we probably haven't done this for about six weeks or so, it might be. We've definitely been head down trying to bring more childcare, more affordable childcare, to more employers. That's our day to day. I don't know if you know, but I got an email from one of our listeners. You did, yeah, I didn't tell you that. Huh, I guess not. They had asked about additional childcare credits in other states beyond Indiana.

Speaker 1: 1:43

Well, I guess we should cover some of those then.

Speaker 2: 1:47

I think we should, and so today our count actually for subscribers, we're at 542 on our newsletter.

Speaker 1: 2:00

Our moms are working overtime. I was looking for ways, so how do you know what it is to make bed? I think they're you can do that joke every time.

Speaker 2: 2:11

I know I do it every time. No, it definitely is. It's leaning to the bed. So 542 subscribers and I think when we looked at our we looked at our let's see all time 114 downloads. Okay, that's great.

Speaker 2: 2:33

I think this is definitely a niche topic but to remind everybody, we got into this because there is money out there and some states are just making it really really hard to get to. Some states, like Indiana, made it really really easy to get to. We're still following that one. That was the one that I think it was 25 million up to $750,000. And I remember in December and January a couple organizations from Indiana reached out to the company and I was like you all just missed it and they were like dang. So a lot of these they just go under the radar. They don't have really great publicity Until now, tell the tax break breakdown.

Speaker 2: 3:19

So we are going to cover Missouri. There's two parts to bill SB742. This one has passed the House. It has not passed the Senate yet. So what we're going to say today is what we know as of today. This could definitely change, but we want to talk about this because to get it on your radar, because, like the Indiana one, it pops up, it gives you a short time to get the funds and then they close it. So, if you operate in Missouri, here are two that are going to be interesting to watch out. Both of them do say that they would be effective starting January 1st 2025. So we're in March, let's say this takes several more months to pass.

Speaker 1: 4:04

You may have a small window For this to be how these things go right, they get tied up in, like you know, getting it over, and then they quickly come up with criteria for the application and there's a window of like two weeks. Yeah, so let's be aware.

Speaker 2: 4:21

Google alert this one, if you know about Google Alerts. Sb742 from Missouri. The next one we'll go through is Minnesota. There was a $6 million grant that was available. And then New Mexico is interesting. This one has existed, from what I can tell, since 2020. And it's a corporate childcare tax credit. So, as a reminder, there is a federal tax credit for all tax-paying organizations. It's called Form 8882. And you can get up to $150,000 back as a tax credit per year If you help employees find childcare or if you pay for childcare. This layer is on top of that because it's the state and it's a childcare tax credit. So, with that said, here's some music, because we are gonna go into our first one SB742 from Missouri and my good friend Doug is gonna start out with the first one.

Speaker 1: 5:19

Yeah. So the first layer of this is called the childcare contribution tax credit act, effective January 125, as my co-host here, greg, said, and the credit amount is a 75% reimbursement for contributions to childcare providers or intermediaries, which when I first read I was like that's great. What does that mean? Yes, and so we spent some time taking into the full bill tax to kind of come down to it, and essentially what this is is one of two things. So if we're gonna oversimplify, it is either donating cash or cash equivalent to a provider could be real estate or anything else or, more likely, paying for childcare expenditures for employees directly to a provider.

Speaker 1: 6:10

So this is the cost of care. There's a weird way of just gonna. Normally we see this split different ways, but that's where we've been able to get to it and the funds must directly support childcare for children who all been under and excluding anybody with, so you can't have a direct financial interest in the provider to do this. The fund in increment is capped at 20 million annually, possible 15% overflow reserved for riders in childcare deserts, assuming that the cap is reached. So really cool that we're still in the childcare desert, turbidology spread, be understood, make its way into the bills here and that they're actually allocating some additional funds right, should the program be wildly successful and funds get utilized to make sure that they're addressing those areas. So that is a great thing.

Speaker 2: 7:05

Because of non-refund go ahead. I busted out my abacus in case and we wanted to know 20 million at 15% would be. The next year would be 23 million. So basically three million in addition and then it compounds every year and I think I have seen this too. Obviously this is like a tax that they have so that they can automatically get renewals and they don't always have to go back for more funds. So that's a good thing that, with a possible increase, I don't think we have the exact. I think we gotta wait to figure out what triggers like the reserve to come in, but it's still good that this year would be 20 million, next year could be 23 million, the next year could be whatever 27 million, and it's not so.

Speaker 1: 7:54

Indiana was a one time thing, right, the funds over there. If it passes without changing it doesn't actually get sunset until 2030, the end of 2030. So this is something that could run right for upwards of five years. Now the only thing I'm seeing here that's kind of a not necessarily a gotcha, but Mary of Consolidated. We look at utilization, we talk about hey, sometimes it's kind of hard to access these funds and use them is there is a verification requirement and so it's looking for providers or intermediaries, right. Whoever receives the contribution or payment are gonna have to submit verification with the Department of Economic Development within 60 days of receiving contribution.

Speaker 1: 8:34

Now, depending on the size, frequency I don't know how long. I've noticed it it was. We have to like again right gets tied up, it gets approved. They have to figure out how to implement it. But getting this out, especially to smaller independent childcare providers, and having a good workflow on that is the one thing I see here that could be a little difficult or potentially confusing as it goes. I mean, obviously wanna protect against fraud, other things, but at the same time, depending, something like that could be a serious hindrance to the program really taking off, making the impact that I think is desired.

Speaker 2: 9:13

Yeah, I mean unless you're a large corporation with a team to do this and you work with a large childcare corporation that already has all of this figured out. But when you talk about the license home daycare, it would be hard unless you have a a program that kind of does this for you.

Speaker 1: 9:34

It'll be really savvy. Again, the turnaround time 60 days isn't a lot, especially whether it's home places, home daycare, even a small independent facility. You're running your day-to-day business. It may not connecting the employer, the provider on that side. I could see it being difficult without intermediary, like we're talking about, but also still in negotiations. So something we'll keep a post on as I move forward. This is one we're definitely tracking very closely because it really hits on a couple areas that are super important, and I will let you kind of take the next one here, Greg the second part of it.

Speaker 2: 10:14

Well, going back on this one, just to wrap it up, it's 75% a contribution, so you put in 100,000, 75,000 tax credit Like this could get really, really lucrative for employers. So that was the first one. The next one is specific for employer-provided childcare assistance tax credit act. Again, it's still part of SB742. The effective date for this one is for tax year starting January 1, 2025. And what this one does is it offers a 30% credit on qualified childcare expenses by employers for their employees, capped at $200,000 per taxpayer annually. That is pretty badass. A lot of words. That is good. A lot of words, but pretty good. 30% credit on qualified childcare expenditures.

Speaker 2: 11:09

Now, when any bill says qualified childcare expenditures, it's very specific and it could be very broad or it could be very narrow. And this one it is related to childcare facilities, licensed childcare facilities. So the childcare has to be licensed. So, unfortunately, friends, family, neighbor do not qualify. Nanny's babysitters do not qualify. Your licensed home daycare, your licensed centers would qualify, yep. So some facility requirements the childcare facility must be open to employees' dependence. Fitting the age and care level criteria should be easy to reach. Credits are non-refundable and non-transforable but can be carried forward for six years. That's awesome. Annual cap and increment capped at 20 million annually, with a possible 15% increase. So, similar to the previous bill and this one also is expected or the expires on December 31st 2030, unless reauthorized. My guess is that when it passes and hopefully it does, and it's not too different except taking up that verification requirement we're gonna have five years of funds, hopefully 15% more every year.

Speaker 2: 12:33

It's gonna be used, because look at the Indiana one, remember, indiana opened up and closed. I mean, people are gonna use it and then hopefully it gets reauthorized. But this is the kind of stuff that this exists, these funds are being put into bills. They're getting there. So this is our building awareness around this one. Again, this is for Missouri, SB 742. Watch it. It passed the house. It's in the Senate right now. We'll keep our eye on it as well.

Speaker 1: 13:05

More thing on both of these that I forgot to call out as we went through the first one. But tax exempt taxpayers are also eligible for refund. So we've run into this with the federal tax credit before. Right Like, you know, nonprofits can benefit from this as well. Right Like, if you don't have tax liabilities, you can still benefit from these programs. So that's a great like kind of bell on at the end of the day to really support the entire community.

Speaker 2: 13:36

Yep, Now let's roll in. Hew the music here for number two. I'm gonna have some editing to do after this, yeah you really are.

Speaker 1: 13:45

You're the drummer, I'm not. I don't know why I'm doing that?

Speaker 2: 13:48

Yeah, I don't know. Minnesota $6 million grant. You want to take this one away? No, it's the Greater.

Speaker 1: 13:57

Minnesota Child Care Facility Grants. But this is what's been doing some interesting things, you know, at the space over the past few years and I think the original grant program was established in 2020. And then it was it was.

Speaker 1: 14:12

Struggling to. Yeah, they were trying to find funding. They liked the concept of it, but they had to find the money. And so, in 23, they received $900,000 from general obligation bond funds my favorite kind of bond funds, I think I don't know and so now it's at the launch July 24, so we're coming up on it. And so this is really.

Speaker 1: 14:33

It's an economic development initiative by Greater Minnesota and it's looking to ads to apply, right, so it's not like an out and out employer program we normally talk about, but, right, it's an incredible investment. Right, and it's also really focused on job retention and growth. Right, so there's opportunities here for employers to get involved but also to benefit from these as they go. And there's two types of grants depending on the funding availability, and so it's either by political subdivisions or, I believe, it can actually go directly to childcare providers, and there's grant caps set at $500,000 per project or $2 million over two years to a single applicant within the same city or county. Funds can be used for land acquisition, facility design, construction, renovations, furnishing, equipping childcare facilities and improvements to state childcare requirements. Funding is looking to increase capacity here.

Speaker 1: 15:41

Now we were talking about this and going back and forth like do we include this? Because it's not a direct employer-based tax credit but right, different state, different organization. Right, talking with employer over the past couple of weeks right, it is an area, it is a childcare desert. They want to look to find ways to increase capacity. Now, they don't directly want to open and run a childcare facility but with funds like this available and awareness of them, right, they can help or partner and look to assist that, to direct it and things here. And so I think there's a really. These opportunities are really novel opportunities for employers. Right to look to increase supply and marry-ex. At the end of the day, if there's not supply, right, even if you want to pay for expenses, how are you going to do so? But we've run into it, we've talked about different ways to do it where there's not supply. It's a great opportunity to be able to address that and really benefit the community as a whole.

Speaker 2: 16:42

Yep and it says obviously it says it's an early planning stage just now, but the call for proposals is expected to begin. Write this down if you're in Minnesota July 1st 2024, a couple of months away. This is an interesting one. It's milling like. The amount is going to be a test. For sure, I think it's going to be a little bit smaller, but it's a start.

Speaker 1: 17:18

It's going to be a really interesting one to see how it's utilized. I think one of the things we're really interested in with Indiana was who's going to apply, who's going to get awarded. It was very broad. You could apply as a collection of, as a non-profit, a collection of small employers, large employers. It would be really interesting to see how this gets utilized. Not something I think we can adequately criticize or anything there is, just go okay. It's going to be interesting to see how this one plays out.

Speaker 2: 17:49

Yep. Now let's turn our attention to New Mexico. I love these ones, I love the ones that have already been around, right that you kind of just needed to know about them. It's like a form that you needed to know about, but a lot of people just didn't know that it existed. So New Mexico, it's New Mexico Corporate Child Care Credit Form CIT-3. The purpose of the form is for corporations in New Mexico claiming a tax credit for expenses related to childcare services for employees' dependents. So that could be tuition, that could be help finding care. I don't think it listed out exactly all the specific requirements, but your basics of tuition and finding care are included.

Speaker 2: 18:37

Eligibility corporations operating licensed childcare facilities in New Mexico, primarily for employees' children or those paying for childcare services during work hours, can apply. And how is it calculated? For operating the childcare facility, the credit is 30% of the net operating cost, capped at $30,000. Something, not a whole lot, but it's something. Let's get 30. I think a lot of companies small businesses, medium-sized businesses $30,000, a lot. For paying for childcare services. Same thing Credit is 30% of total childcare expenses for childcare services, capped at 30%. Requirements facilities must be licensed, operate non-profit belief for corporations and serve employees' children during work hours and if you're a manufacturing plant that's operating 24-7, that counts. That does Credit can't exceed $30,000 or the amount of New Mexico income tax due. Unused credits can be carried forward for three years.

Speaker 2: 19:50

How many you know? I'd wonder, how many CPAs accounting do they know about and how do they take advantage? You know, if I was a CPA on the other side, are they just saying, hey, there's this credit, but they likely don't know how to implement it right? Are they just telling them or are they just looking at the books? It's probably both a little bit of strategy and a little bit of hey, it looks like you spent money on childcare. There is a form for this. We can take advantage of it, but it's unlikely that they're paying attention to it, that they're trying to advocate for more, that they know how to maximize it. So that's why we're here. This is an easy one. It already exists, it's there.

Speaker 1: 20:38

I mean it's a little bit like a chicken or egg thing, because today, from what we've seen, people put programs in place and then we talk to them, we have conversations. They find their own, maybe through a CPA or whatever it is. They're like oh, there's a credit available for it. That's great. And I think really part of what we're trying to go through here, the conversations we have, is this exists, the underlying for an organization on assisting with childcare is massive, and now there's ways to even reduce that expenditure more significantly that you may not have known were there before, until you go and find out about it after the fact. So it's really trying to flip that and go like, hey, these incentives are there, we can put a program in place and it's already going to be partially funded right before anything else.

Speaker 2: 21:32

And I think that's why we do this and why we do the day-to-day Well, speaking also of ROI and impact, I had a really interesting example that I just remembered I wanted to share, talking with a large food processing manufacturer. They have a ton of facilities all across the US. This one was in a rural area of Texas. Their biggest challenge was absenteeism and what they found was that on any given day, 9% to 10% of employees had to call out. Now there was a substantial amount related to childcare, but think about that. You have 100 people. 9 to 10 are calling out every single day.

Speaker 2: 22:18

So what happens when someone calls out? Because many people don't know this, somebody calls out, that means they have to ask somebody else that is currently working to stay longer, and then that has downstream effects. Obviously, now that employee is working overtime, the next shift that comes in needs to know they may need to adjust, and so an example is let's say, in this industry the hourly rate's like 1565. And they have to pay somebody overtime, which is one and a half or two times on holidays, which really, when you look at that and then you, if you know your daily absenteeism rate, this was costing just this plant $2,400 a day, $72,000 a month, just an absenteeism. So that's a very easy way to do this calculation for companies that are like well, how do I calculate this? You can look at the percent of employees that call in per shift. You then figure out hourly rates what is your multiple for overtime? And you're going to be able to get a daily, weekly, monthly, annual cost of what this costs. If somebody is absent, absent but then also absent for child care, or the reason is child care, yep.

Speaker 2: 23:41

Well, we hope that you enjoyed this episode. This is our shortest episode. We're coming up on about 24 minutes.

Speaker 2: 23:49

So, let us cue the music here. Everybody have a great Friday, today's Friday. Before actually, you're going to cut the music out, what's record scratch, record scratch. I'll put a record scratch. What are your plans for this weekend, doug?

Speaker 1: 24:10

I don't have any plans for this weekend and I'm so excited for that. It's been a busy couple of weeks. My elder boys got a soccer game tonight, so taking them out to that. It's hanging with the kids this weekend and no agenda. I love that. What do you have? Since we last had an episode as the puppy, there's a puppy now.

Speaker 2: 24:33

We do have a puppy. My wife and I celebrated our anniversary yesterday. We got married on the Leap Day four years ago, so it's our first anniversary, but we are going to rent. There are those little boats, they're called Duffy's. Have you heard about these? It's like a little boat, like an electronic boat. It's called a Duffy. After that we're going to go to a diner called Darian Diner and then, I don't know, that's probably. It Probably going to sit on the couch, maybe watch some reality TV, and with that, that is the outro Cue, the music. Have a happy Friday. Thank you, doug, as always, and that is the episode.

Speaker 1: 25:23

See ya.