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Key points:
- Despite the high cost of child care in Kansas, tax credits designed to help businesses offset child care costs remain largely unused.
- The main challenges include limited awareness and accessibility of tax credits.
- Expanding child care will help people return to work.
The lack of child care in Kansas places a huge burden on families, but business tax credits are rarely used to offset the costs.
The credit is intended to encourage small businesses to offset the costs of their employees and get money taken out of their state taxes in compensation. A company that contracts with a licensed provider and spends $5,000 a year can get back $2,500 in state tax benefits. That number rises even more when federal rebates are added.
This credit is provided to businesses that pay child care fees directly, help pay for referral services to find child care, or offset the costs of building and operating a child care center. Larger businesses can also apply, but some of the tax credits are capped at $30,000, covering only a small portion of the costs for larger operations.
Changes in state law in 2022 expand the types of businesses eligible for rebates.
“It’s going to help Kansas families. It’s going to help our economy (and) it’s going to help people get back to work,” said Sen. Oretha Faust Goudeau, D-Wichita, of the 2022 legislation. I mentioned it at the time.
It’s not clear how much or how much of the credits were used. The Kansas Department of Revenue tracks data on tax credit usage. A November report to lawmakers said the credit was used less than five times a year. However, the most recent year the data was compiled was 2021, before the employer credit was revised.
Still, some lawmakers say it’s not being used at all, and local groups recently created an online toolkit to spread awareness about the credit.
One reason why advocates suspect the credit is unused? The company may not have the resources to take advantage of it. One chamber of commerce said that even with tax breaks, members still don’t have the luxury of offsetting childcare costs.
Businesses do not need to build childcare centers to benefit from this credit. If you are a small business, you can simply match the amount with your employee’s childcare costs. But Jason Higgins, tax manager at accounting and business advisory firm Adams Brown, said larger investments are a good way to leverage credit.
“If you’re really going to spend a lot of money and take advantage of this credit, you’re going to either attach it to your business or actually have your own facility right down the street,” he said.
What’s more, the state doesn’t really advertise its presence, lawmakers and businesses told the Beacon.
“We know that very well,” Higgins said. “(Accounting) firms are more up-to-date. We know where to go to find things like this, but the typical firm doesn’t.”
Higgins learned about the trust because he monitors Congress, but not every small business owner can afford to spend time in Congress. He said it could take years for companies to learn about the credits because the country is slow to release information.
However, the Chamber is working to share this information. Raising WyCo, a group of community and business leaders in the Kansas City area, offers an online tool kit and tax relief calculator.
The toolkit and credit calculator aim to “demystify tax credits for employers,” said the president and CEO of Family Conservancy, an organization that works to spread awareness about tax credits. CEO Paula Ness said.
Some companies think they need to open their own facility to make a profit, but companies can set back thousands of dollars without doing that.
Mr Ness said businesses could use the credit to attract employees, invest in childcare businesses and help people return to work.
Infant child care costs 1.3 times the cost of in-state college tuition. This allows parents (mainly women) to stay at home. By bringing women back into the workforce, Kansas and Missouri could grow their economies by 15% by 2025, a study by the McKinsey Global Institute found.
That’s one reason Senate Minority Leader Dinah Sykes, a Lenexa Democrat, made changes to the tax credit in 2022.
She said businesses are a key part of the solution. Child care is a means of economic development, and increasing interest in this financing is a form of small business development and also reduces costs for families, she said.
“There is a labor shortage,” Sykes said. “After COVID-19, a lot of women stayed home, and this is her one piece of the puzzle to move that forward.”
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