Tax Credit for Employers & Other Contributors

The nonrefundable Child Care Tax Credit is for taxpaying individuals and entities (such as businesses, trusts, estates, philanthropic organizations, etc.) who make qualifying contributions to help improve the availability of child care options, especially for families and communities facing serious economic challenges. To qualify for the tax credit, the contributing individual or organization must have a tax liability.

Nonrefundable tax credits reduce a taxpayer’s tax bill. If the amount of the credit is larger than the tax payer’s tax liability, the difference is not refunded.
In the case of the nonrefundable Child Care Tax Credit, the contributor may apply the unused amount of the credit to their tax liability for the following tax year. However, the credit must be completely used within five years of the contribution.

The nonrefundable Child Care Tax Credit for Employers and Other Contributors is available in two tiers. For either tier, the total amount of the credit may not exceed $100,000 per year.

To qualify for the nonrefundable credit, contributions must be used by the recipient specifically for child care services. Examples include:

• Establishing or expanding a child care program
• Enabling a program to purchase learning materials or play equipment
• Professional development of child care program staff
• Child care tuition assistance for families in need
• Referral services to connect families to child care providers

Contributors may not claim the nonrefundable credit if they benefit from the contribution, unless it is made on a bona fide, arm’s length basis. For example, a parent could contribute to a fund that helps pay for child care for families of low income. However, that parent cannot claim their own tuition payment to a child care provider as a “contribution.”

Contributions can be made by cash, cash equivalent, check, commodities, publicly traded securities and other methods. Please note that in-kind services or properties do not qualify for the tax credit.

Contributions may be made directly to specific child care programs or indirectly through intermediary organizations such as community collaboratives, local development funds and other entities involved in child care initiatives.

Contributors can apply for the nonrefundable credit as soon as they have received a completed copy of the Child Care Tax Credit Contribution Receipt from the recipient of their contribution. It is not necessary to wait until the end of the tax year to apply for the credit.

The Nebraska Legislature has approved $2.5M per year for the nonrefundable Child Care Tax Credit. When the annual limit is reached, the Nebraska Department of Revenue (NDOR) will not issue any more nonrefundable contribution credits until the following tax year. NDOR will process applications in the order in which they are received.

Contributors can monitor how much of the annual $2.5M limit has been approved on NDOR’s website.