Childcare Tax Break Breakdown
Welcome to 'Childcare Tax Break Breakdown,' the essential podcast for HR and operation leaders in large enterprise organizations across the United States. Hosted by Greg and Doug, two experts with a shared passion for savvy financial solutions and a unique personal bond - both are proud dads, former single fathers, born on the same day, and enthusiasts in finding financial loopholes. Every episode guides you through the latest childcare legislation and financial grants, offering insights into application processes, usage, and their critical importance to your organization. Beyond the technicalities, they bring a personal touch with stories from their parenting experiences, adding warmth and relatability. Stay informed and ahead of the curve by subscribing to 'Childcare Tax Break Breakdown' and join Greg and Doug on a journey through the financial landscape that shapes the future of childcare and organizational growth.
Support the podcast and buy us a coffee (we need it):
https://www.buymeacoffee.com/taxbreakbreakdown
Childcare Tax Break Breakdown
Episode 8: Alabama's HB 358 Tax Breaks, Why Childcare "Surveys" Don't Work, and North Carolina's "National Day Without Childcare"
As we navigate the heartfelt observances of Mother's Day and the National Day Without Child Care, we uncover the stark realities child care providers face every single day. From the grueling hours and low compensation to the burdensome costs of operations, our latest episode offers an eye-opening discussion on the dire need for systemic support in this crucial sector. The spotlight turns to Alabama's groundbreaking HB 358; a piece of legislation poised to make a considerable difference for child care through incentivized tax breaks. And we don't stop there – we also hint at the potential shortcomings of employer surveys in understanding the true child care needs of their workforce, a debate that's sure to capture your interest in episodes to come.
For those fascinated by the nitty-gritty of policy impact, our conversation moves into designing employer child care benefit programs that truly serve the needs of workers earning under $30 an hour. Tapping into the lived experiences of employees, we scrutinize how the over-reliance on surveys can lead to critical oversights, all while stressing the strategic importance of child care benefits in talent acquisition. Moreover, we go through Alabama's HB 358 with its tax break initiative for employers, laying out a roadmap for how targeted programs could boost workforce participation and improve the child care landscape in Alabama and beyond. Join us for this exploration of how legislation and employer action can intersect to support our communities' caregivers and working parents alike.
Thank you for joining us on 'Childcare Tax Break Breakdown'! If you found our deep dive into childcare benefit programs insightful, please consider subscribing for more valuable discussions. For further information, questions, or to share your experiences with childcare benefits, DM Doug or myself here on LinkedIn. Stay tuned for our next episode, where we'll explore more current and upcoming childcare grants and tax programs employers can take advantage of. Don't forget to leave us a review and share this episode with your colleagues. Together, let's make the most of workplace benefits and tax breaks!
Disclaimer: This podcast is for informational purposes only and shouldn't be seen as financial or legal advice. Tax rules change and can be complex, so it's always a good idea to check with a professional for your specific needs. We're not responsible for how this information is used.
Welcome to the Tax Break Breakdown with your hosts, Greg and Doug. Sit back and relax while they review current and upcoming child care tax break programs.
Speaker 2:Welcome to the Child Care Tax Break Breakdown with your hosts, gregory and Douglas. Round of applause Doug, it's been a few weeks since our last episode. Busy few weeks. Busy few weeks. Doug and I have been traveling, but maybe before we jump in happy belated Mother's Day.
Speaker 1:Yeah, I heard you were busy. Special weekend yeah, we were. I had, fortunately for my mom, my sister was in town with my nephews so I got to spend time with them and also give my wife a little bit of break from from the boys and get some time to herself and a nice relaxing weekend there.
Speaker 2:So it was, uh, it was really good I was yours we, uh, my wife said this year I want to do nothing, so I made that happen. Breakfast dinner, the um, I did breakfast. We just did some, uh, gourmet, uh, eggs and bacon and, and you know, I, as you know, she is pregnant, um, so she does love orange juice right now. That's one of her. Uh, okay, there you go One of the cravings. Um, but it was good, it was a good day, and kicking it off today, may 13th, I think you know this, but today is National Day Without Child Care.
Speaker 1:It is.
Speaker 2:Uh and unfortunately it's.
Speaker 2:You know, there are national days that are positive. This one is meant to drive awareness, um, and it started out in North Carolina, and so there's a um organizer advocate there, uh, danielle Caldwell, and she's in Durham, north Carolina, and she closed her at-home daycare in January because of low pay, long hours, and there's a movement all around National Day Without Child Care, which I know that facilities in North Carolina are closing for the day, and then there are also centers that have joined nationwide. I think, ultimately, the purpose is more action to the press and lawmakers to add more funding, and I know we've talked about this before. We see, like what's coming. There's like a groundswell that is happening, so the majority of people don't see that yet, but I'm seeing it left and right, and this is these things do help, though, these days and these awareness builders they do.
Speaker 1:I mean, I'm incredibly grateful um selfishly that that rain's daycare was not closed today, um, but but even if it were, I would understand it, especially in in trying to continue to push right on. The momentum that's starting to happen we're seeing across the States is where we started this, um, but uh, you know it is sometimes it's just one of those things that can be out of sight, out of mind, and you got to bring it to the forefront. These things can be really successful and doing that.
Speaker 2:Yeah, uh, she had mentioned um, in North and I did some research on this the average child care teacher earns about $14 to $15 an hour at a center for the work that they do. And then she had mentioned for her own home daycare, which we have a lot of experience with FCCs and home daycares, the expensive due to insurance, licensing, rent, a bunch of other costs, and in North Carolina specifically it's actually a felony to operate a child care center without a license yeah, I mean, I think it's we've gotten to it the cost of running a center um obviously carry a lot of overhead, um, when you look at even just doing an fcc, and there's certainly costs and liability and things.
Speaker 1:I mean it's it's typically something right.
Speaker 1:That people get into is more of a passion thing, right, they want to help their community, they want to work with children, they want to support the next generation and it's really gotten to a point now where it is up to a lot of these government programs, bills that are being us right organizations that are looking to to kind of break the cycle, to to make, to, to invest in those people are willing to invest in their communities in the future, not just the communities, but the the country in this next generation. So, um, it's great that we're getting attention to it. We're starting to see more, uh, you know, I think I get now, since we started doing this, probably family, friends, other people, um, connected with sent me, like you know news articles of different bills that are getting passed and entering in.
Speaker 1:so it's really fun to see that start to happen. But we have to keep pushing on it and we have to keep pushing through, um, you know, some of those restrictions right On some of these bills right and different programs that go into place, that that that limit the effectiveness of them.
Speaker 2:Yep, and today we will be also talking about one of the bills in Alabama, which is HB 358. And there's a lot of great movement there. I even saw that it was potentially out for signature. I'll have to catch up on that this week, but there was some news that I saw over the weekend. So maybe in our next episode we'll come back around weekend. So maybe in our next episode we'll come back around.
Speaker 2:But at the end of the day those that are listening there are events that are happening. You can contact your lawmakers, you can stay informed about what's happening and support your local child care providers in any way that you can. Before we jump into Alabama, which is the main topic, there is a minor topic that I wanted to talk about and this could probably be its own episode. Okay, because you and I have a very interesting view on this, but I think if we were to do a new episode, the title would be why employer surveys of childcare needs don't work, like, why don't they work. So maybe, doug, give us a little background on what a child care survey is.
Speaker 1:Okay, yeah, why are they doing?
Speaker 2:it. Why do? Why do companies want to do a survey?
Speaker 1:well I mean. So the context of where we come from. This is we have a lot of conversations about putting in employer child care benefit programs right with employers, and one of the most common responses is you know, we want to do a survey, we want to see right like is this really a need? Um, and it's hard because it's such a logical step to take. Let's ask and I think, especially when we look at some of the industries that we love to focus on frontline employees and manufacturing, retail healthcare, it's not necessarily a bad thing, but does it get you the answer you want? Because you know there's a childcare issue across the country with everybody. And so if you have any employees that are making less than $20 an hour maybe less than $30 an hour, whatever that threshold may be and they have children, they are faced with this decision of do we have a parent stay home? What do I do? Are we using friends and family care? And so when you ask that question internally right, and I'm being the HR space for as long as I have there's a very strong bias to say, yeah, we have it covered, I have it covered.
Speaker 1:People don't necessarily want to scream at the rooftops like, hey, I'm struggling with this and it's causing me to miss work. Yep, there is. I think we're at the point now where everybody kind of knows that this is an issue that everybody faces, and so when you survey, you're going to get some answers, and those answers are going to be valid for about 15 minutes because, let's say, an employee answers right, yeah, no, grandma watches the kids, we're all good, right? Grandma got sick tomorrow, right? Or you know a husband's schedule changed, or I have to pick up a shift, and the thing is is you don't get the level of detail that you need to understand, like what somebody's true caregiving responsibilities and situation and challenges are. And you know, I think you know. One of the other ones is you know we're going to survey those that have dependence right on our health plan. Well, not everybody has those, so you're missing a segment of the population and so it becomes a really difficult thing to really get the full picture.
Speaker 2:Well, I know and this was, I believe, a McKinsey report but 7% of companies have a care benefit, 48% are adding or expanding. And, like we talked about, when we have these conversations it typically happens more at the director level and above, where they say, well, we haven't really heard anything. But when you ask them, well, have we talked to managers? Some have, some haven't, and those that have talked to managers go, yes, like it's a challenge, so there's a gap there. It's a challenge, so there's a gap there. And then I think when you look at a child care survey, you're you're forgetting about the benefits of a child care benefit to new recruits. So how do you know any of your new recruits are going to not have child care? Like child care can be a competitive advantage. So when you're like, let me survey what I have today, you're forgetting about that whole side of it. And then even, like you mentioned, doesn't give the full picture. If you do a survey for a week, you know there are some people at companies that love to take surveys and there are some that don't, so you're really only getting like a small fraction of a fraction. And then, even then, all you're doing is extracting. You're not actually providing value, right then. And there back to them.
Speaker 2:Cause there's the reason we're saying this stuff is because there is another way to do this. But that's why these one-time surveys don't work. It's a one-time thing, it only applies to certain people. Foregoes the recruitment. The surveys are typically not designed to uncover exact need. Like are you asking budget? Are you mapping it to areas? So, even though someone has a budget, if you don't know the cost of care in the area, how are you even gauging that they have a challenge, right? So there's all these like question issues. I think you wanted to respond to any of those. And then I want to get into like, what is the different approach? Like what is a different way to do it?
Speaker 1:well, I probably help you. Second, to that right because the like to me to do a survey correctly, right the questions you have to ask and how you have to communicate that and get it out there. You need to be committed to doing something to help resolve it, right? I mean, I think one of the biggest dangers when you do a survey about anything that's going to impact employees is you're going to hear, right, that people would love to have support in certain areas. Your job with that information is to take action on it. Right, to alleviate some of that pain. Right, that's building that employee experience and relationship. So, the weight of what you would have to do to get an accurate picture and then the expectation of action on the back end of that, you might as well put a program in place. You're going to expend the same amount of effort and get more value, which I think is probably where you're going to go with that.
Speaker 2:Well, yeah, I mean I was also going to say, like the time it takes, right. So in your experience, having to first agree that we want to do a survey, then you get comms involved, right? So then you have to prepare the survey. Some people are saying, well, we need to go to like an outside agency to design the survey. Some are like we should do it. Then you have to then get it in front of the employees, then they have to fill it out. You got to give enough time. Then you have to take it back and then someone has to analyze it. Then you have to call a group. You know like how much time does that typically take?
Speaker 1:I would say three to six months yeah, I think it's probably three to six, like from the beginning. I mean we've done like abbreviated things before, right, and like I had a bunch of programs to get some indication, but we'd already made the decision we were going to move forward. So that helps streamline things and, you know, kind of take out, and some organizations, right, have done a really great job right, keeping a pulse on the employee population, these things that can spin stuff up pretty quickly, but it doesn't solve. The other issues of it is that you have the information Now what, and you can do those things at the same time. Right, you can get the information and support people.
Speaker 2:Yeah, do those things at the same time, right, you can get the information and support people, yeah, which I think is the model that we have started to design and have designed over the last couple of years. But the way that we see the optimal way to do this is, instead of just sending out a one-time survey, you would actually start a program, and what we typically see is a program that involves a care navigation experience first. And what we typically see is a program that involves a care navigation experience first. And for those that don't know, the care navigation is like I think it was a personal assistant to employees, a concierge, where the employees then are talking to somebody and they're sharing in real time what their challenges are. And, because it's a third party, it's generally a lot deeper of a need, because they're not concerned with oh my, I might not get a promotion or I'm going to appear weak, right, like. And so you have these care navigators who sit in the middle and they're taking in in real time every day, every week, what their employees are actually asking for. But the benefit there is that care navigators they're actually helping place people in childcare at the same time. So instead of then waiting three to six months to then put a solution in place.
Speaker 2:You're actually already having a solution and then, underlying all those care navigation interactions, you're capturing data on okay, here's who we were able to place, here's who we were able to match, here's who we were not able to match, but also why, and that's the most important, because you really want the survey to indicate need, but then also like what is the actual gap, and you can do this at the same time, and I think the solution we've put together.
Speaker 2:If you all want to hear about it more, feel free to message us. But it's a very different approach and I think I have a lot of companies that are doing that this year, because here's the thing they know that they have to make a financial contribution at some point. They also know that they don't want to do nothing, and so this is a great in-between to then get the data, to then show executives how much of a problem it is, what the impact is, and then they can actually put an ROI together to make the case for a $1, $2, $3, $4, $5 million stipend across the entire company. So any last thoughts on that?
Speaker 1:I think the easiest way to distill it is there's three pieces of information you need that you can only get by truly running a program like this is what are people saying right? What do they say they struggle with? Right? How did they answer those questions on intake right into a third party, right? What are they doing right? Does that party right, what are they doing right? Does that match with what people actually search for? And then I think you hit it really well right the outcomes? What is successful? What is not? Is there challenges with budget? Is it supply? Is it just space availability? Um, you know schedule? Right, if we can identify those gaps, we we can attack them. Otherwise, you're playing with inefficiencies and one size fits all doesn't work across industries or geographies in this case. So that data has significantly helped us support our partner organizations and continue to shut that from the rooftops every chance I get.
Speaker 2:Yeah, I think you also mentioned supply, right? So if you did a survey and people indicated there's just no childcare around us, then what do you do with that? Like, is it just a lost cause? It's not a lost cause, because there are so many different things you could do to build supply without actually building an onsite center. That could be a whole another topic.
Speaker 2:Let us move into the main topic, uh, which is alabama, hb 358. Um, so a little background. Um, I know that in alabama, their workforce right, the it says the legislation aims to encourage more alabamians to enter the workforce by improving the quality availability of child care options for working parents, and so what this bill does is it provides a tax credit for employers. We're all about child care tax break breakdown. We might need to change the name again. It's a mouthful, but it's employer programs that employers can take advantage of. Like that's the goal. So Alabama has one. But it also supports grants for non-profit child care providers and it provides tax credits for current existing child care providers. And so, um, at the end of the day, alabama they had the lowest workforce partition participation rates in the country, and so they looked at this and I think this is also coming off of. There was a report that was just done that showed like brought this to light that actually scored. Remember we did, I think, an episode on this and it scored.
Speaker 2:And Alabama scored really, really low, and so this could be a response to that. Whether I don't know if it was already in place, but they know that a lack of affordable child care is a barrier that prevents people from entering the workforce. Simple as that. So I'm going to talk about the employer tax credit, then, doug, if you want to talk about the child care, and then maybe any stipulations that we found, and then I want to give a scenario and then we're going to wrap it up stipulations that we found, and then I want to give a scenario, and then we're going to wrap it up. This is going to we're going to try to make some of the episodes a little bit shorter, but, um, how's that sound, dougie? Let's go so. Employer tax credits this one is amazing. Similar to Indiana, but employers can receive a tax credit equal to 75% of eligible childcare expenses up to. Can you guess how much money they could get?
Speaker 1:$600,000.
Speaker 2:How did you know that?
Speaker 1:It's almost like we prepare for these things, my brother $600,000 employers can receive.
Speaker 2:If you're a small business which is under 25 employees, you can receive a credit equal to 100% of your eligible cost. So let's talk about what are eligible expenses. So this could be constructing or renovating a child care facility, purchasing equipment, paying child care facilities or employees to provide our reserve child care services for employees' children. So things like backup care, a stipend those can qualify. Now, this is why we've done this podcast is because the total employer credits are capped at $15 million. So then it goes up at $15 million. So then it goes up. So $15 million in 2025, $17.5 in 2026, and $20 million in 2027. Right, is it? So if you could do the math, doug, how many companies would that equal if they all got $600,000?
Speaker 1:The answer is 33. Good answer, thank you, well done.
Speaker 2:The answer is 33. Okay, so if you're an employer, you better start looking at this, because this is likely going to randomly pop up when the application's ready to go. Doug, why don't you share a little bit about the child care provider tax credit, any stipulations, like anything that they really need to know? And then I'll jump into the scenario.
Speaker 1:Yeah, so we get some additional nuances to this, which is interesting.
Speaker 1:One of them actually targets child care providers.
Speaker 1:There's a facility tax credit that is based on the average monthly number of children participating in the state's child care subsidy program.
Speaker 1:So, typically targeted towards low income families, child care subsidy programs help subsidize the cost of care for those who cannot afford to pay for it themselves. So there's also oftentimes a bit of a stigma for facilities right child care providers to take subsidy because it can take a little bit of time to get paid sometimes, and so this is obviously incentivizing trying to juice that program as well in the same bill. And tax credits for all providers are capped at $5 million per calendar year, so it's a pretty significant incentive when you look at it from a child care provider side. That could cover a lot of facilities. It would be interesting to get into the red tape a little bit there. I'm not as familiar as Alabama's subsidy program, so if it's something that has been a struggle similar to what we've seen in California, where I know we've managed to administer one and be really good on the reimbursement side and that's done really well, this could potentially help make that more impactful in low-income areas.
Speaker 2:The other thing there sorry, on that it does depend. The reimbursement depends on the quality rating. So you do have to have the quality rating one to five stars and based off that you, as the child care provider, can get between $1,000 and $2,000 per child per month.
Speaker 1:So it's a pretty significant kicker to to participate there. So really, really interested to see how that plays out. It's one of the more creative things that I've seen, uh, directly targeting that space. Uh, I think a while um, on the employer side, uh, when I did a first read through on this, I was like this seems a little more onerous than I wanted it to be. Second read-through I went okay, I think this is just a lot of words, but it's not going to be too bad, which is how these bills go right as we dig into them.
Speaker 1:So employers need to complete a certificate, right, certifying that expenses went to the right place, you know. Provide some documentation on what they paid, um. Clarity on pass-through entities. Identify ownership, um. The one of the things I love about this program is that it is reserving funds for small businesses, right, very often kind of left behind, uh, lifeblood of some of these smaller towns, especially in rural areas, that need support in this area. So at least 25% of credits are reserved for small businesses or those headquartered in rural counties. Another one that we do love are rural counties and child care needs. I think that was all episode a little while back.
Speaker 2:We have so many, we have so many, we have so many so many um and uh credits.
Speaker 1:This is coming back to the timing here. Credits are awarded in the order requested, with priority given to benefit employees eligible for the earned income tax credit. So programs that target frontline employees right Lower waged employees, will get priority. Other than that, it's first come, first serve and that is. You know, we have a limited thing. That is probably the best way, I think, to put some gaining in place. Yep. So yeah, after reading through it again, um was really happy with the initial text around it. Obviously I think this is out for signature. Uh, so I think it's on the governor's desk. Last I checked it was routed on the 9th. Uh, it moved very quickly through the house and the senate. So yeah, uh, this may be the fastest I think we've seen one of these go through.
Speaker 2:Point being there are dollars that are happening in Alabama, there's a cap on them and they're prioritized, also like there is a first come, first serve. So we will try to keep you up to date with all Um, I did want to talk just about what is like. What is the scenario, what does this look like? So let's say I'll do like an employer tax credit for a small business and then a large business, let's say ABC company. Small business, 20 employees. They say let me support childcare. They spent 50,000 to renovate a room in their office building as a childcare facility and they hire a childcare provider to run it. They also pay $30,000 to reserve spots for their employees' children in a nearby high-quality child care facility. So, as a small business, abc Company is eligible for a tax credit equal to 100% of their eligible expenses. And keep in mind, this is tax credits that are paid to the state of Alabama, not federal federal. So their eligible expenses are $80,000. Therefore, abc can claim an $80,000 tax credit against their state taxes for that year. That's crazy. Now let's look at another one.
Speaker 2:Acme Corp is a large enterprise, 10,000 employees across multiple states. They have 1,000 in Alabama, so it still qualifies. You have employees that are living and working in Alabama. They say I want to do it as well and they decide to give a $250 subsidy. So 250 of their employees are eligible for this benefit. Let's say 250 times 12 months, times 250 eligible employees at $750,000. So ACME is eligible for a credit equal to 75% up to $600,000. So in this case, 75% of the $750,000 that went to employees is $562,500, which is below the cap of $600,000. So Acme Corp can claim a credit against their Alabama state taxes for that year of $562,500. I mean, it's insane. And with that we're going to end there. Thank you so much for joining. This was episode number eight, I believe. Uh, and take it away, doug.
Speaker 1:Uh, looking forward to number nine, because we're going to talk about Florida. We're going to keep an eye on this one and, um, I love you I'm um love you too.
Speaker 2:Cue the outro, thank you.