Childcare Tax Break Breakdown

Episode 9: Are Bigger Childcare Stipends Always Better? Our Research Says No + Upcoming Bills in Pennsylvania and Ohio

• Greg Crisci & Doug Devereaux • Season 1 • Episode 9

Share episode

Support our podcast and buy us a coffee (we need it):
https://www.buymeacoffee.com/taxbreakbreakdown

Ever wondered how effective childcare tax credits really are for employers and employees? Join us as we uncover the intricacies of Pennsylvania's House Bill 1958, which offers a 30% tax credit for employers contributing to childcare costs. Doug shares insights from his upcoming father-son trip to Dollywood before we dive into the pressing topic of childcare stipends and their impact. Through our analysis, we'll reveal why larger stipends don't always equate to better outcomes and how you can maximize the efficiency of these benefits to significantly reduce employee turnover.

Stick around as we discuss the optimal monthly stipend range of (listen to find out), showcasing how this sweet spot can provide the best return on investment for businesses. We'll also address the broader implications of balancing turnover rates with employee satisfaction and absenteeism, offering a holistic approach to workforce management. Plus, we're celebrating some exciting milestones with you, including surpassing 202 downloads and 601 LinkedIn newsletter subscribers. To wrap things up, we share a fun fact about our soccer backgrounds and wish you all a fantastic Thursday.

Tune in for these insights and more!

Support the show

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.

Speaker 1:

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 credit programs employers can take advantage of. Now on to the show.

Speaker 2:

Welcome everybody to Episode 9 of the Child Care Tax Break Breakdown with your hosts, greg and Doug. Howdy, Doug, how are you?

Speaker 1:

Been a lot of travel this month.

Speaker 2:

Yeah, I know, and then you're also traveling all next week I'll be in Atlanta. You're going to Nashville, leave for Nashville today. Today, today's Thursday.

Speaker 1:

I know, I know we're going to dollywood man.

Speaker 2:

Oh, yeah, yeah, yeah, that's awesome. Are you gonna actually find some time to like ride the rides?

Speaker 1:

yeah, bring in uh andy, my the 13 year old, so we're gonna find some time and and make a fun little like father son bonding trip. We haven't done that in a while. It takes up.

Speaker 2:

So much time. You need to FaceTime me because I think they have one of the largest wooden roller coasters.

Speaker 1:

Yeah, I was like shocked. Like originally, when we were doing this, I didn't think it was, like you know, going to be that fun. And then I looked at it and I was like this is legit. Yeah, there's, there's a ton of coasters there. That was when I I roped andy, and so he's gonna get some work experience too, which is good for him um well it's in pigeon forge.

Speaker 2:

So yep, that's what. How that's like a three hour, isn't like three hour outside of Nashville?

Speaker 1:

Yeah, it's three hours from Nashville. But when we were looking at the flights it was like if I connect through Atlanta, it was going to be the same travel time to get to Knoxville If I could fly direct to Nashville.

Speaker 2:

I'd rather drive. Well, that's exciting. We're meeting a lot of clients, getting things out there, but also having a little bit of fun with our kiddos.

Speaker 1:

Today is my little one's three-year birthday time flies alone.

Speaker 2:

That's awesome. We got so that you know what. With the reverse of that, we actually said you know what? Just immediate family at my parents house we tend to do the same well, we have a good episode for everybody today.

Speaker 2:

There are a couple upcoming bills, like we talked about. The reason why we started this podcast was because there are so many new bills that are in flight, that exist, that are upcoming, and this is proof that that was true. So pennsy, pennsylvania, has a bill that passed the Senate no, no, passed the House. It's going to the Senate of Pennsylvania. And then Ohio has one as well, and these are both employer tax credits. So these states are saying we understand there's a workforce challenge. We also believe that it's not the full responsibility of an employer to solve this problem. So we're going to help out because everybody wins if employees can get the child care that they need.

Speaker 2:

And then the main topic, which I think is a. It's a little bit of a um you, you would think the opposite is true, meaning the more money that you give in terms of a child care stipend, the higher the impact. But our research has found that that's actually not true, and Doug has been leading a pretty significant research project not officially out, but we'll give a little bit of insight into what that amount, or let's give them a range, maybe not an exact amount, but Doug will talk about that topic because a lot of employers come to us and say, well, how much are other people giving? Or what if I just like pay for all of it? Um, but ultimately you want to be able, as an employer, to uh, have the most cost effective dollar for every dollar that you give. It needs to be the most cost effective. So, um, other news we have 202 downloads, with episode one being the most. So your parents are listening. Quite a bit.

Speaker 1:

They're doing all the work. A lot of email addresses they've created for this 601 LinkedIn newsletter subscribers.

Speaker 2:

Awesome man. I have another grug fact that.

Speaker 1:

I don't know if you put together.

Speaker 2:

Okay, Well, I know one when I played soccer I was was a keeper.

Speaker 1:

that was my position well, there we go.

Speaker 2:

And when you were a keeper which you, you kept it going a lot longer than I did. You were a keeper, I was a keeper that's right.

Speaker 1:

So there you go, grub fact Another one.

Speaker 2:

We keep finding them, we'll keep digging. So let's switch over to the first topic here Pennsylvania. So this is House Bill 1958. So, pennsylvania House. They passed a bill that provides tax credits to employers who assist their employees with child care expenses. Ultimately, it's going to help with the workforce, but they recognize that the state child care system needs help. The bill moves to the Senate, and then the governor is also involved in monitoring this. It was a bipartisan bill, so 155 to 47. What this does is employers get a tax credit that's equal to 30% of their contributions to employees childcare expenses. It's capped, though, at $500 per employee. So still something. It's something.

Speaker 1:

It's something. It's not nothing, but that's a low cap, I mean yeah.

Speaker 2:

I didn't. I need to reread it. I didn't know if that was annual or if it was monthly. I believe it's annual.

Speaker 1:

Yeah, my read was that it was annual. I mean, I think some of the feedback because it wasn't unanimous We've seen some of these unanimously pass state houses and Senate, like. Some of the feedback was around like general budgetary stuff and then some of it was they didn't feel the amount was compelling. Yeah, I think it's something that's like anything is helpful, right, but right, is it actually going to clear the threshold? I look at this especially for, like smaller employers right. Large employer right scale, like you have enough scale right. 500 times enough times right, it's going to add up to not insignificant amount. You know, I think this actually feeds really well into the topic today because it's like what is that amount right, what should that amount be, and and how do you actually move the needle these things?

Speaker 2:

well, they also found out. Pennsylvania did an analysis and said that Pennsylvania alone loses $3.47 billion annually due to insufficient childcare. So that's just in Pennsylvania. You have to think about it also holistically. Because this is a state tax credit, you also can stack on the federal credit as well.

Speaker 1:

Yeah, so it adds up right Like it's still good, right Like anything's good. It's just can be better and that's what we should strive for, but still like having they keep popping up, like week to week, right Like new bills passing like everywhere. So it's it's good to see the traction.

Speaker 2:

Yeah, and think about right. One of the challenges that we hear a lot of employers is I don't have the resources to monitor all of these. Like I don't know what I'm going to qualify for, uh I don't know what our employees can qualify for.

Speaker 2:

So ultimately, part of the grander vision has been coming to play, where you can start stacking these as an employer but then also stack them as an employee and significantly reduce your cost Yep by what's already out there. That's the reason we started this podcast let's see here so it does recognize. Well, just to recap, this is for employee employer. So if you're an employer and you have employees that are in Pennsylvania, 30% of what you contribute to their care expenses can be a tax credit up to 500, right? So let's say you have 500 employees, 500 people use it, that's 250 250 000, sorry.

Speaker 1:

Yeah, like I said, at a certain scale it's not insignificant at all. I mean it's yep. I mean we've seen it right in several states. Right, it's a little bit richer, but there's limited funds, right, and it goes quick. This could be broader, right, where it can impact a greater portion of the population, which is which is great. So I mean there's be interesting, like I'd really be interesting to see the uptake and, if they like, if this comes with less restrictions on applying for it and less hoops to jump through, we could actually see it be successful. So I mean, I think it's it is a bit novel and how low that cap is, but it'd be interesting if they can reduce some of the barriers to obtaining it and it being broadly available to all employers well, you heard it here first or second or third, whenever you heard it, but penn.

Speaker 2:

But Pennsylvania is another state that will be monitoring House Bill 1958. And you, as an employer, can stack this tax credit. You can get a tax credit, a state tax credit, by supporting your employees with child care, which can be stacked on to the existing $150,000 federal tax credit, which is Form 8882, that you can get if you contribute to the cost of care. So stack upon, stack upon stack is not only going to help you as an employer, get a competitive advantage, but we know that it leads to retention, greater retention, reduced absenteeism and all the amazing benefits of helping employees with their kiddos, because kiddos they're not going away, no, and they're not getting cheaper Not at all. Next up, ohio. Why don't you start this one, ohio? Tell us a little bit about the.

Speaker 1:

Ohio, ohio. It's like Senate Bill 273. Working its way down to the house there, it's a voluntary cost share program for child care expenses between employers eligible of families in the Ohio Department of Children and Youth. So that sounds a little bit like a tri-share setup. Yeah, um looks like 10 million dollars in uh funding allocated initially, right, so kind of the contrast to the pennsylvania bill. Right, we have a limited fund pool here as well. Um actually came out of the republican party in ohio. Uh, really looking to address affordability. Um, you want to go into some of the background on?

Speaker 2:

it Sure. Well, and one other thing, uh, that I've noticed across a lot of the States. This is a it's a bipartisan support, like it's it's typically majority are supporting, and there are some that have some concerns about it. But even in the Pennsylvania one, the concern was is this even enough? So it wasn't necessarily like should we not do this? It was more of is this even going to help Like that amount? Context and background here, though just like Pennsylvania, ohio realized that high costs and provider shortages have worsened since COVID. 47% of US parents spend up to $18,000 on childcare. Ohio's childcare staffing dropped 36% from 2017 to 2022. And 40% of Ohioans live in areas with insufficient child care, which we call child care deserts. So that's just ohio. Mix that with pennsylvania, who says they're losing 3.47 billion annually due to insufficient child care, and that's only two of the states. Let's talk a little bit about the structure of the program, dougie.

Speaker 1:

Yeah, I mean, you know it's a voluntary participation, so businesses are going to have to opt in, probably apply for the program and see how that comes out. One of the things I think is interesting here is the eligibility. So we see a lot of programs that really target to layer on existing programs. This actually is looking at Ohio residents but those that are ineligible for publicly funded childcare. So we think about kind of below the poverty line there's programs there right For LMI families. It's really looking to hit that next tier of employees right who maybe make enough to not qualify.

Speaker 1:

They've fallen off that benefit cliff, right, and that's, um, you know, benefit cliffs are something that you know cause problems with these types of programs because it forces people to make decisions. It's like I'm going to make a little bit more money but I'm going to lose access to this resource. Um, and it's a big thing both internally how you decide benefit programs, even an organization, but also publicly, right In this case. So I think it's really interesting that it's targeting that next kind of tier of earners right To support them. And again, I think we see how this kind of works through. But again kind of poking at a slightly different angle of the problem, which should give us some insight into the impact of how these things should be designed, based on what we're trying to accomplish in areas well, they, um, they had said child care scarcity is a significant barrier to employment entry or re-entry, and this is again it's.

Speaker 2:

The incentive is to encourage businesses to support employees, and the incentive there is you get a tax credit on your state tax bill, but again it can be stacked. So let's think about the scenario where you're an employer that has employees in Ohio and Pennsylvania. So now, first you got to know what you qualify for. Do you have employees there? How much are they paying for childcare? What are you offering them? If you're offering a stipend, is it the same amount? Is the money that you pay to employees actually going to qualified childcare resource expenses? So typically we see that it does the funds do need to go to, say, a license provider so it can't go to friends and family, um, so how do you track all that? Right, how are you going to track all of any stipend money?

Speaker 2:

Which is a good segue into the main topic here for the rest of the episode, which is um doug has been leading the charge on research and again, this is going to be a formal report at some point, but I wanted to get this out because we get this question a lot, which is okay, I want to help my employees with childcare. There's some options. An onsite center can't do that, just a navigation tool is great, but most of the time employees need financial support. So how much business metrics that people are looking for, which is turnover, what is that exact amount? But the premise is, is that people first are saying, well, how much should I give? And then the second is, well, what is the level that is going to have the most impact? So, doug, take it away and tell us are bigger child care stipends always better? Our research says no.

Speaker 1:

With a really large caveat, right, because we're looking at this through the lens right, like the business impact lens right and specifically towards turnover, right. So, again, like, how we frame this conversation depends on what we're trying to impact. Typically, when you're trying to sell a program internally, you're looking for ROI, we're looking for maximum efficiency, you're looking for ROI, we're looking for maximum efficiency, and that's really, I think, a key part to getting this wider spread, because more will help families, more you could pay for all childcare. It's going to benefit individuals more than what we're talking about here. But when we look at actually being able to get programs in place and where there's impact, there is a point of diminishing returns.

Speaker 1:

As you put more funds in, right, you're already supporting people.

Speaker 1:

It's already having an impact on turnover, and so there's a way to maximize efficiency, to maximize the ROI of the program, to showcase its impact, and then, ultimately, we'd like to see that expand, right, maybe you expand to different types of care and well-being to help support the workforce, but we're focused on childcare here, and so, in looking at this across type and programs, we look at a couple of different things to come to this number for individual organizations and typically we're looking at the cost of care in the area and employees' budgets, right, and what is the difference between those two?

Speaker 1:

And that gives us a range Typically depending on wage levels and geography. We're going to find a gap of somewhere between $150 and $400 a month and so typically people go oh, that bigger number, that's going to be it. That number can be scary when you model it out and we've seen plenty of programs kind of get nixed because of that. So typically what we're finding on average, the maximum impact. So that point of diminishing returns, yes, you're going to continue to impact turnover in a positive way past.

Speaker 2:

here Is this the drum roll, drum roll. Please we getting there, yes, drum roll, drum roll, please Drum roll.

Speaker 1:

Yes, drum roll, drum roll. It is somewhere in the range of $250 to $300 a month. That is right for organization geography. Somewhere in there is typically going to be your point of diminishing returns. I think the exact number when we ran it across our sample size was around $263 a month. What we're seeing in that recommendation is going a little bit more towards that 250, because you always can increase it.

Speaker 1:

It's hard to take things away and so we want to be able to hone that with data over time. But we're starting to really see that reduction in turnover and the way we measure that is are are those that utilize the stipend, right, a group of employees that typically term from an organization at a higher rate than the general population. Are we able to flip that script by putting this in place? And the answer has been a resounding yes. And looking at 23 organizations over 150,000 employees, the average impact is about 9.8, right? So in the same measurement period, right, an employee who utilizes a childcare stipend that $250 range is nine times less likely to leave an organization than one that does. That's a really significant delta.

Speaker 2:

And let's do a quick example though, because I know there's a percent that would leave nine times Like what. Give us a quick. Let's say the. Let's say that the entire like frontline worker turnover, let's say this is hospitality, it's 100%. So those that do not opt in just a regular employee, 100%.

Speaker 1:

I'm going to make this super simple. Right, we have 100 employees right that do not use the benefit and historically, these 100 employees that don't have child care responsibilities, right, let's say that they turn over at 20%. Right, now, that number is going to stay fixed through the study. Right, we're not impacting that number because they don't have it. But let's say we have 100 employees right that term at, on average, right, 50% because they have childcare responsibilities. So those with dependents, you know, under the age of 12, this could group of 100. They tend to determine 100, right, they term 30 more. They're more likely to determine a year 30 more right than this, than this group.

Speaker 1:

That doesn't right. And now the difference is right, the way this math would work is we're using that baseline population to measure it, so, so they term at 20%. I said, right, yep, okay, so we're actually going to bring this cohort that terms at 50%, under that 20%, we're going to completely flip it and the way that would look here is you're going to divide 20 by nine. So I didn't make the math super easy for myself. But what we've seen right is instances where that group that was terming right 50 over the year, significant turnover is now in the single digits, right, and that that is how significant it'd be, right and that.

Speaker 1:

So the other way you can look at that right is like it's an 80 85 reduction in turnover among that cohort, like that's very significant and that is that is the power of supporting child care and families and helping people get back into stay in the workforce and going back to avoiding some of those benefit cliffs. Because when we look at frontline employees, one of the things that may cause them to go I don't know right, like do I want to enter the workforce right? Is some of those benefit cliffs that may exist in different states. As your household income goes up, you lose access to certain programs. This is a way, especially in some of those hard to fill jobs, to really move the needle.

Speaker 2:

Yeah Well, I know that the way that we collect this data is very interesting, but we're not going to share how we do that. That is some secret sauce, but it is. It's what you opened up with is really important to think about, because if you were measuring 250 may move employee satisfaction a certain amount, but if you paid for everything this is what we want to uncover over time is does employee satisfaction skyrocket nine X when you when that dollar amount actually goes up? So this study is specifically on what we can measure now, which is turnover, and what is that amount at which a business could be most cost effective? Now that's the business lens. You talk about an employee. They're going to say give me everything, but again it comes back to that is not sustainable right and you run into challenges of things being equitable.

Speaker 1:

Right for those that maybe don't have children. They have caregiving responsibilities for elders, or, yep, that's even right and so it's. It's it's how do you balance it and there's ways to do it. And yeah, we're looking just at turnover here to start, but we will actually be bringing in some of those satisfaction numbers, absenteeism, really looking to hone this over time because, just because we have like a good, like really strong like correlation here and we know kind of that amount, we can hone it. This is just one way to kind of look at the picture and it's important we keep kind of looking at it holistically to keep helping us move forward.

Speaker 2:

And, with that said, cue the music here and we're out. Have a great Thursday. Have a great Thursday, have a great weekend and say happy birthday to my three-year-old Birthday, slav.