School Readiness Tax Credit Helps Children, Pocketbooks

Legislation has been introduced to promote school readiness and make it more affordable for parents to pay for the increasingly high costs of high-quality child care. Additionally, businesses could qualify for a tax credit for their efforts to provide or help employees find quality child care.

Child care for one child in Minnesota costs $901 per month on average, or $10,812 per year. Minnesota is the third-most expensive state in the nation for child care, based on the cost of infant care as a share of median income (15.5%). The legislation creates a School Readiness Tax Credit for families and businesses that seek high-quality child care.

The legislation uses the Parents Aware (http://parentawareratings.org/) ranking system to create tiered credits depending on the quality of the child care provider. The credit is applicable for parents at the following rates:

  • A four star rated program: credit equal to 150% of existing dependent tax credit
  • A three star rated program: credit equal to 100% of existing dependent tax credit
  • A two star rated program: credit equal to 50% of existing dependent tax credit

A family could qualify for a savings of $1,050 for one child and a maximum of $2,100. The credit is refundable for taxpayers earning less than $25,750, adjusted for inflation, meaning those taxpayers can earn a refund equal to the credit amount even if they do not have tax liability. All other taxpayers would be allowed to carry forward the credit’s worth for up to five tax years. Families still could qualify for the existing state dependent care credit, allowing for an additional benefit on top of the one currently offered.

The tax credit also includes businesses that offer on-site child care or provide subsidies or other support to employees paying for child care services. Again linked to Parent Aware ratings, there are three types of financial contributions that would qualify for the credit:

  • Payments to construct, renovate, expand, or repair a child care facility, purchase equipment for the facility, or maintain or operate a facility;
  • Payments made to an eligible child care facility on behalf of employees, not to exceed $5,000 per child;
  • Payments for the purchase of child care slots at eligible child care facilities reserved for employees’ children.

If the payments were made to a four-star rated program, the business could claim a credit equal to 15% of payments made; 10% for three-star programs; and 5% for two-star programs. (S.F. 244)

Senate DFL Media