Throughout the United States, there’s an emphasis on taxes right now, not just because it’s currently income tax season, but also because of the opportunity to rewrite federal tax policy.
This year, President Donald Trump’s 2018 major tax code overhaul is set to expire and conversations and advocacy will be taking place to ensure that the most vulnerable populations can benefit most from new tax laws. Lawmakers across the political spectrum are weighing in; long time child tax credit advocates like Rosa DeLauro continue to call for improved and expanded child tax credits and there are some GOP senators like Josh Hawley (R-MO) have proposed tax credits that would support parents and families.
For Benu Chhabra, a family child care provider in Concord, California and a long-time advocate for policies that benefit family child care providers, this is an opportunity to make this profession more financially sustainable for providers.
“Tax policy encourages business stability in periods of financial strain and fluctuating enrollment,” she said about the importance of tax policies that are friendly to family child care providers and family, friend and neighbor caregivers. “Tax credits can offset rising costs associated with running our family child care businesses like high electricity bills and food costs.”
As a policy advocate, Chhabra said it’s important that any proposed tax credit is accessible and well-publicized and caters to the unique needs of providers.
Ultimately, Chhabra wants to see a major evolution of the way policy that impacts family child care providers is made.
“Policymakers should be giving tax credits to us as providers like they’re giving it to the parents,” she said.
As Chhabra points out, the financial impact tax policy can make on the lives of HBCC providers is significant. Because of this, there is an opportunity for organizations to make federal policy asks or for local governments to replicate some existing, successful programs.
Here are some existing programs:
Federal and state child tax credit
Across the country, 16 states and the federal government offer a child tax credit. Because 28% of child care workers are also parents, this tax credit is beneficial to the HBCC provider workforce. With the expanded child tax credit, more than 61 million children in 36 million households benefited as the funds were used primarily for meeting basic needs like child care, housing, food, and more.
These tax credits are most effective when they are substantial, refundable, reach I-TIN filers, have no minimum income threshold, and have no work requirements to obtain them. Twelve of the 16 states offering the credit have made it refundable.
Federal and state child and dependent care tax credit
The child and dependent care tax credit is available federally and in 25 states to help families manage the cost of child care. This tax credit allows parents to access credits based on the actual amount of money spent on child care in a year. However, to access the credit, the families must be able to identify their child care provider by their business tax identification (EIN number), which puts families who use informal caregivers at a disadvantage. There is a workaround for this that uses the provider’s social security number, but tax preparers are not widely aware of it and providers may be reluctant to share their SSN with a family.
These tax credits are not refundable, which limits the program’s accessibility for lower-income families.
State careworker tax credit
Colorado has passed a bill that would implement a tax credit for careworkers throughout the state. The bill, HB1312, allows for a $1,200 refundable income tax credit for qualifying care workers for income tax years between January 1, 2024 and January 1, 2029. Eligible care workers include: child care workers, home health care workers, personal care aides, certified nursing assistants, and more who have worked in the occupation in Colorado for at least six months of that tax year.
State-level opportunities to offset other tax liabilities
Within individual states, there are opportunities to offset tax liabilities for various home-based child care providers. In Texas, a constitutional amendment was recently passed that allows child care facilities to be exempted from local property taxes. While this offset doesn’t apply to HBCC providers, it could inform the design of a later policy that would have a significant positive financial impact on licensed HBCC providers.
In Austin, Home Grown is piloting a direct cash transfer program for HBCC providers licensed or registered in the state of Texas to account for the difference in property tax bills between child care facilities and HBCC providers. Home Grown will use network funds to offer the City of Austin providers up to $2,000 annually (or more if provider’s property taxes exceed $2K) in financial relief grants to offset costs for eligible licensed and registered providers located in Austin with an active agreement with Workforce Solutions Capital Area. Eligible providers must also participate in the Texas Rising Star program with an entry-level designation or higher.
In Louisiana, a School Readiness Tax Credit is available to providers who meet credentialing requirements. These refundable credits are provided directly to home-based child care educators, center-based classroom teachers and directors. The credit amount is based on the provider’s credentials, is fully refundable, and can be as much as $4,000 per year.
With our current federal backdrop, there continues to be opportunity for innovation and progress at the state and local level around tax policy. We are lifting up these policies to inspire other localities to replicate them or to inform asks in any upcoming federal policy advocacy efforts.
