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Oregon has two tax credit programs that can assist employers when they support their employee's child care needs! There is also a federal tax credit that can help with child care cost.
OREGON DEPENDENT CARE TAX CREDITOregon is among many states in the nation that offer a state tax credit for dependent care assistance provided to employees. Oregon's tax credit permits an employer to offset 50 percent of its child care expenditures against its state tax liability. The credit allows an annual limit of $2,500 per employee. The state tax credit for child care applies to these costs:
- Contracting with a third-party child care provider;
- Purchasing employees' child care through payments to a third-party child care provider;
- Providing direct subsidies or vouchers to employees; and
- Contracting for information and referral services
This credit is for employers who provide dependent care information and referral services. The services must be used to help their employees find dependent care. The credit is 50 percent of the amount paid by the employer to provide these services. The credit is available for expenses incurred before January 1, 2017. This credit is for employers who pay for the care of their employees' dependents. The person receiving the dependent care must be an employee's: - Dependent, under the age of 13, or
- Dependent, physically or mentally incapable of self-care, or
- Spouse, who is physically or mentally incapable of self-care.
The credit is the smaller of: - 50 percent of the qualifying expenses paid by the employer, or
- $2,500 per employee who receives the assistance
The employer must have a written dependent care assistance plan. Taxpayers must apply to the Child Care Division of the Employment Department and receive certification – click on link for application - http://www.oregon.gov/EMPLOY/CCD/docs/DependantCareTaxApp.pdf. Only amounts paid for dependent care provided in Oregon are eligible for the credit. The dependent care provider cannot be the employee's spouse, a dependent, or a child (under age 19). Business deductions claimed on the employer's tax return must be reduced by the amount of the credit claimed. This credit is available for expenses incurred before January 1, 2017. For more information about using the Oregon Department Care Tax Credit click here http://www.oregon.gov/DOR/PERTAX/docs/101-697.pdf. CHILD CARE CONTRIBUTION TAX CREDITThe Child Care Contribution Tax Credit Program allows anyone to earn a 75 cent tax credit for each dollar contributed. How would you like to earn a 75 cent tax credit for each dollar you contribute? You can do just that with the Oregon's Child Care Contribution Tax Credit. Any individual or company with Oregon state tax liability is eligible. Proceeds from the credits will be used to create demonstration projects to show how child care can work when adequately funded. By simultaneously addressing quality, affordability and provider compensation, this innovative tax credit program will reveal the true cost of quality child care and help to restore balance in this critical sector of Oregon's economy. FEDERAL TAX CREDITIn June 2001, as part of the Economic Growth and Tax Relief Reconciliation Act, Congress enacted into law the first federal employer tax credit for child care. Beginning in tax year 2002, the law allows employers a 25% credit for the costs of acquiring, constructing, rehabilitating, or expanding a child care facility, the costs of operating a child care facility, or the costs of contracting with a third-party child care provider. In addition, the law gives employers a 10 percent credit for the costs of providing child care resource and referral services to employees. The total credit has an annual limit of $150,000 in tax assistance per employer.
The federal and state tax credits may be combined to offer a larger financial incentive to employers. The state tax credit will decrease an employer's state tax liability. However, if an employer lowers its state tax liability by claiming a credit, the federal tax liability will be higher than it would have been if the employer had not claimed the credit. This is because state taxes are deducted from income in the calculation of federal taxable income. Despite this interaction, an employer's combined federal and state tax liability will be lower as a result of claiming a credit than it otherwise would have been.
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