As we have been discussing in recent blog posts, the Treasury Department released its Fiscal Year 2024 General Explanations of the Administration’s Revenue Proposals, commonly called the “Green Book,” on March 9, 2023. This year’s Green Book includes a proposal that both employers and employees are likely to embrace: an enhanced tax credit for employers that provide childcare.

Currently, employers that offer childcare through their own facility or through a contract with a third-party provider are eligible to claim a nonrefundable tax credit equal to 25% of “qualified child care expenditures” and 10% of “qualified child care resource and referral expenditures.” The credit is capped at $150,000 per year. The Administration’s proposal would increase the credit that may be claimed for qualified childcare expenditures to 50% and increase the total credit to $500,000 per year. The amount of credit that may be claimed with respect to resource and referral expenditures would remain 10% of those expenses. If implemented, the increased tax credit would be effective for tax years beginning on or after January 1, 2024.

“Qualified child care expenditures” are defined generally as the fair market value of amounts paid or incurred to acquire, construct, or expand property that is used for the employer’s childcare facility, operating a childcare facility (including facility employee training and certain compensation), or to pay for a contract with a third-party childcare facility to provide childcare to the employer’s employees. “Qualified child care resource and referral expenditures” are the amounts paid or incurred in providing resources and referral services to employees on a nondiscriminatory basis.

The Green Book explains the purpose of the proposal as promoting a benefit that is valued by employees with children, and which could, in turn, result in better employee attendance, performance, retention, and satisfaction. The increased tax credit—which is up to 233-1/3% greater than the current benefit—has the potential to enable more employers to offer childcare benefits and may encourage employers already offering such programs to continue or expand them. As companies continue to navigate pandemic-related workforce challenges, including returning to in-office attendance, these childcare benefits could indeed have a positive effect on employee morale and retention.

The Administration is not the only government seeking to address the link between childcare access and workforce stability; just last week, the Chancellor of the Exchequer announced a budget that will increase the amount of free childcare available to parents of young children in England, with the stated goal of helping parents return to the workforce.