Dependent Care Tax Credit
Oregon is among 20 states in the nation that offer a state tax credit for dependent care assistance provided to employees. Oregon´s tax credit permits an employer to offset 50 percent of its child care expenditures against its state tax liability. The credit allows an annual limit of $2,500 per employee.
The state tax credit for child care applies to these costs:
- Contracting with a third-party child care provider;
- Purchasing employees´ child care through payments to a third-party child care provider;
- Providing direct subsidies or vouchers to employees; and
- Contracting for child care resource and referral services.
Federal Tax Credit
In June 2001, as part of the Economic Growth and Tax Relief Reconciliation Act, Congress enacted into law the first federal employer tax credit for child care. Beginning in tax year 2002, the law allows employers a 25% credit for the costs of acquiring, constructing, rehabilitating, or expanding a child care facility, the costs of operating a child care facility, or the costs of contracting with a third-party child care provider. In addition, the law gives employers a 10 percent credit for the costs of providing child care resource and referral services to employees. The total credit has an annual limit of $150,000 in tax assistance per employer.
The federal and state tax credits may be combined to offer a larger financial incentive to employers. The state tax credit will decrease an employer´s state tax liability. However, if an employer lowers its state tax liability by claiming a credit, the federal tax liability will be higher than it would have been if the employer had not claimed the credit. This is because state taxes are deducted from income in the calculation of federal taxable income. Despite this interaction, an employer´s combined federal and state tax liability will be lower as a result of claiming a credit than it otherwise would have been.
Read about additional tax incentives, including dependent care assistance plans, on the employers tab of the Central Coordination of Child Care Resource and Referral page.
Click here to download a PDF version of the Dependent Care Tax Credit form