Can a revitalized child tax credit really help working families?

Toddler playing outside at child care center

The American Rescue Plan, signed into law in March 2021, expanded the Child Tax Credit to help families defray child care and child-related costs. It provided eligible families with up to $3,600 in direct cash payments – an increase from $2,000 in end-of-year tax credits. When the expanded tax credit expired at the end of 2021, Congress failed to extend it, leaving 19 million children with only a partial Child Tax Credit or none at all.


A bipartisan bill – the Tax Relief for American Families and Workers Act of 2024 – could potentially revitalize the CTC expansion. However, it comes with caveats and potential delays as it moves through the houses of Congress. Here’s why employers should take note:

A band-aid solution: understanding the limits of tax credits


The availability of child care – especially quality care – is a major constraint which tax credits don’t address. They don’t increase the supply of care for the families living in child care deserts. The credits don’t offer support for the 49% of parents with children under 5 who are without child care or parents with school-aged children who also need support


And, the proposed tax credits won’t cover the actual cost of child care. According to thresholds set by the federal government, child care is considered affordable if it costs no more than 7% of a family’s income. In reality, the cost of child care is much higher, ranging from a low of 11.7% of median family income in Mississippi to a high of 28.6% in Washington, D.C. (four times the cost of annual tuition for a four-year college).


The implications of these soaring child care expenses are profound: In a 2023 survey by Motherly, more than half of mothers contemplated leaving their jobs due to the rising cost of child care. A Bank of America Workplace Benefits report from the same year echoed this sentiment, revealing a parallel trend: 6% of employees scaled back their hours, 11% resigned or exited the workforce entirely, and 9% declined promotions owing to caregiving duties. Moreover, turnover expenses, as cited by the Society of Human Resources Management, can fluctuate from 90% to 200% of an employee's salary, further underscoring the financial toll.


When parents use tax credits to defray child care costs, they can’t use them for other child essentials like food and clothing. At best, tax credits are a band-aid, not a cure, falling short of addressing the broader needs of families.


What should employers do to support working families?


While expanded tax credits are not yet a done deal, employers can help support their employees by initiating or expanding child care support.


According to a study from the Council for a Strong America, insufficient child care costs businesses $23 billion annually in lost revenue, and costs parents three times that. Challenges include lost employee productivity, lateness, absences, and distracted workers; for workers, the bottom line is lost wages.


With 73% of employees now identifying as “caregivers” – the fastest growing employee demographic today – companies need to pay attention to employees’ family care challenges. The alternative could mean losing women workers because of dependent care needs and the inability to cover child care fees. It could also affect working dads, 94% of whom care for children under 6 with 92% supporting children 6 to 18, cites the Bureau of Labor Statistics.    


Savvy companies aren’t waiting to update their child care policies. While large businesses (1,000+ workers) are more likely to offer on-site child care, micro businesses (one-to-24 employees) and small-to-medium businesses (25-999 workers) are adding child care benefits as well. Some, like Boyd Group, are offering back-up care to fill in when an employee’s own care resources are unavailable, or offering online tutoring and summer camp programs for parents with school-aged children who need support during holiday breaks and summer vacations.


The more resolute are taking advantage of government tax credits of up to $150,000 that make it more affordable to build and operate on-site child care centers that prioritize their own workers but, also, may create additional child care supply for its local community. 


In today’s employee-competitive environment, child care benefits consistently rank as one of the top benefits preferred by workers. Companies looking to build and sustain a loyal worker base shouldn’t wait for Congress to act. They need to take meaningful steps now to offer the child care benefits that will attract and retain working parents.

Toddler playing outside at child care center

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