October 4, 2022

ACN Center

Area Control Network

Employer-Provided Child Care Credit: Estimated Claims and Factors Limiting Wider Use

26 min read

What GAO Found

The Employer-Provided Child Care Credit can save employers with eligible expenses (see figure) more in taxes than using a deduction alone, and employees can exclude some child care benefits from their taxable wages. For employers, the credit can offset actual federal income tax liability. Employers may also deduct child care expenses. To avoid duplication, the total amount deductible must be reduced by amounts claimed for the credit. For employees, certain child care benefits can be excluded from their wages, up to $5,000. If an employee’s expenses exceed the exclusion limit, they may be eligible to claim the Child and Dependent Care Credit, but not for the same expenses.

Employers’ Eligible Expenses under the Employer-Provided Child Care Credit

In 2016, the most recent complete year available, the Internal Revenue Service estimated 169 to 278 corporate income tax returns claimed an aggregate estimated $15.7 to $18.8 million in Employer-Provided Child Care credits. In 2018, the most recent year available, IRS estimated corporate returns reported $144.7 to $154.8 million in qualified child care facility expenses, and fewer child care resource and referral expenses. In 2013, the last year available, manufacturing, finance and insurance, and information industries accounted for about half of the aggregate amounts of the credit claimed.

Selected groups that review employers, workers and families, and child care issues told GAO several factors limit employers’ use of the credit. For example, several groups said that building and operating on-site child care entails substantial costs, and planning and administering on-site child care can be complex. These groups also said employers are often unaware of the credit and that it may be too small, in relation to the costs, to sufficiently incentivize employers to provide child care. These groups suggested increasing outreach and education and redesigning the credit. For example, some groups suggested increasing the portion of expenses that can be offset and the maximum allowable credit. Other groups said changes to the credit may not increase use, and that employee interest in on-site child care may decrease if remote work becomes more common. In addition, credit changes could result in increased federal costs.

Groups GAO interviewed also described various benefits of the employerprovided child care services eligible for the credit, such as employees’ increased productivity and engagement. However, some noted that such services may not be accessible to all employees, such as shift workers, and may not be affordable even when employer-subsidized.

Why GAO Did This Study

Child care is essential for allowing many adults to engage in the workforce but concerns about family access to child care have increased after many child care centers and family child care programs closed during the COVID-19 pandemic. Established in 2001, the Employer- Provided Child Care Credit can provide a tax incentive for employers to provide child care benefits.

House Committee Report 116-456 included a provision for GAO to review the credit. For this report, GAO examines (1) the tax implications for employer-provided child care for employers and employees, (2) the numbers and common characteristics of employers claiming the credit, and the amounts of child care expenses claimed, (3) reported challenges employers face in using the tax credit and how these challenges can be addressed, and (4) reported benefits employees receive from child care services eligible for the credit.

To do so, GAO reviewed IRS documents on the tax treatment of fringe benefits; reviewed IRS estimates of filers claiming the credit and amounts claimed; interviewed IRS and Department of the Treasury officials; and reviewed literature and relevant federal laws and regulations. GAO also interviewed eight groups selected to obtain diverse views on employer, worker/family, and child care issues. They were identified through literature review and referrals by interviewees.

For more information, contact Kathryn A. Larin at (202) 512-7215 or larink@gao.gov, or James R. McTigue, Jr. at (202) 512-6806 or mctiguej@gao.gov.

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  • Drug Safety: FDA Should Take Additional Steps to Improve Its Foreign Inspection Program
    In U.S GAO News
    What GAO Found In fiscal year 2019, the Food and Drug Administration (FDA) began to increase the number of inspections of foreign drug manufacturing establishments after decreases from fiscal years 2016 through 2018. FDA, an agency within the Department of Health and Human Services (HHS), conducts the largest number of foreign inspections in India and China, where more than one-third of foreign establishments supplying the U.S. market are located. However, beginning in March 2020, FDA postponed most inspections because of the COVID-19 pandemic, conducting three foreign inspections from March to October 1, 2020. In comparison, FDA conducted more than 600 foreign inspections over the same time period in each of the 2 prior years. From October 2020 to April 2021 (the most recent period for which data are available), FDA conducted 18 high priority foreign inspections—primarily in China. In November 2021, FDA announced it was developing plans to potentially resume foreign inspections in February 2022. GAO has reported that FDA faces unique challenges conducting foreign inspections—including that inspections have generally been preannounced and that investigators may rely on the establishment being inspected to provide translation services. While drugs manufactured overseas for the U.S. market must meet the same requirements as those manufactured in the U.S., these unique challenges raise questions about the equivalence of foreign to domestic inspections. FDA plans on implementing pilot programs focused on evaluating the effect of conducting unannounced inspections and using independent translation services. However, these efforts have been delayed by the COVID-19 pandemic and the agency has not yet finalized the pilots’ designs. As FDA moves forward, the agency could benefit from incorporating leading practices for designing a well-developed and documented pilot program—such as developing a methodology that details the information necessary to evaluate the pilot. This would help ensure the pilots provide FDA with the information it needs to assess the value of unannounced inspections and independent translation services, and to decide whether these approaches should be applied more broadly to other foreign inspections. While FDA has reduced vacancies among its general drug inspection workforce, FDA data showed that the agency still has persistent vacancies among those who specialize in foreign inspections as of November 2021. Specifically: eight of 20 positions were vacant in FDA’s cadre of drug investigators that conduct only foreign inspections, and five of 15 drug investigator positions were vacant in its foreign offices located in China and India. These are longstanding challenges that GAO has previously identified. According to FDA officials, foreign inspection work is challenging, requiring the investigator to work independently in a foreign establishment under constrained time frames. In 2020 and 2021, FDA began to take steps to identify new strategies to recruit and retain this workforce, but the agency has not yet detailed implementation steps and time frames. Fully developing such tailored strategies could help ensure FDA has the workforce needed to meet its global mission. Why GAO Did This Study FDA is responsible for ensuring the safety and effectiveness of all drugs marketed in the U.S., regardless of where they are produced. Globalization—and the outbreak of COVID-19—have complicated FDA’s oversight of the more than 4,000 establishments manufacturing drugs for the U.S. HHS reported that 73 percent of establishments manufacturing active ingredients, and 52 percent of those manufacturing finished drugs for the U.S., were located overseas as of March 2021. GAO’s concerns about FDA’s ability to oversee the increasingly global drug supply chain led it to designate the issue as a high risk area in 2009. GAO was asked to update its work on FDA’s foreign drug inspection program. This report (1) describes the number of inspections prior to and during the COVID-19 pandemic, (2) examines steps taken to address challenges related to preannouncing foreign inspections and language barriers, and (3) examines efforts to maintain a sufficient inspection workforce, among other objectives. For this work, GAO examined FDA data and documents and interviewed drug investigators and other FDA officials. GAO also visited FDA foreign offices in China and India in fall 2019.

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  • Secretary Blinken’s Call with Qatari Deputy Prime Minister and Minister of Foreign Affairs Al-Thani
    In Crime Control and Security News
    Office of the [Read More…]

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