State Child Care Tax Credits Divert Funds from Other Child Care Initiatives

Despite programs in 28 states offering employer tax credits to assist employees with child care expenses, company participation is disappointingly low, according to a report released Tuesday by the National Women’s Law Center (NWLC). The Little Engine that Hasn’t evaluated 20 states offering child-care tax credits anytime during the late 1990’s through fiscal year 2001 (FY2001). Five states Arkansas, Oklahoma, South Carolina, Tennessee, and Virginia did not receive any claims for the credit, while eleven states had fewer than six employers participate.

Lead author Christina Smith FitzPatrick explained that the child-care tax credits provide little actual incentive since most state corporate filers over 90 percent in 17 of the 20 states studied have minimal, if any, state tax liability. For the 20 states studied, companies claimed a total of only $6 million in child care tax credits. “Employers can’t be encouraged to provide child care assistance because of a tax credit if they aren’t paying taxes,” she said.

The study cautions that state credits which amounted to less than 10 percent of the $2 million allotted in some states divert funds from other, arguably more effective child care and/or education programs. This is particularly critical given a new 2002 federal child care tax credit estimated to cost $48 million in the current fiscal year and $583 million over the five years thereafter.


NY Times 11/19/02; NWLC press release 11/19/02, report 11/19/02

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