As a business owner, you’re constantly looking for ways to reduce tax liability while also attracting and retaining top talent. One credit that often flies under the radar is the Employer-Provided Childcare Tax Credit—especially valuable if your business is structured as an S corporation.
This credit can help you offset up to $150,000 per year by covering:
- 25% of expenses to acquire, build, or operate a qualified childcare facility
- 10% of costs to provide childcare resource and referral services to employees
Examples of Qualified Childcare Costs:
- Renovating or leasing space for an onsite daycare
- Paying childcare providers and staff
- Providing scholarships or training for childcare workers
- Contracting with an outside agency to help employees find care
To claim the credit, file Form 8882. It’s part of the general business credit, which means unused amounts can be carried back one year or carried forward up to 20 years. Since your S corp is a pass-through entity, the credit can flow through to your personal return via Form 3800.
Why This Matters for S Corp Owners
For S corporation owners, smart tax planning goes beyond just taking the right deductions—it’s about building a sustainable compensation strategy that aligns with IRS expectations. Offering childcare benefits can enhance your company’s value to employees while helping justify reasonable wages for owners actively involved in the business.
By supporting employee retention and providing competitive benefits, these costs may strengthen the case for your compensation levels, especially when compared to industry benchmarks. Plus, the ability to claim up to $150,000 in tax credits makes this a powerful tool for reducing overall tax liability while investing in your team.
Next in the Series:
The R&D Tax Credit—often overlooked by small service-based businesses but surprisingly accessible.
Not sure if your business qualifies or how to apply this credit in your overall tax strategy? Reach out to a qualified accounting professional to make sure you're maximizing your benefits and staying compliant.
