A Kansas tax credit can help with child care costs for small businesses. Almost nobody uses it
The credit is designed to encourage small businesses to offset costs for their employees and get money shaved off their state tax bill as a reward, but advocates say the Kansas hasn’t done a great job spreading the word.
The child care shortage in Kansas costs families dearly, yet a business tax credit to offset those costs goes mostly unused.
The credit is designed to encourage small businesses to offset costs for their employees and get money shaved off their state tax bill as a reward. A business spending $5,000 a year contracting with a licensed provider can get $2,500 back in state tax breaks. That number jumps higher when federal kickbacks get mixed in.
The credit is open to businesses that help pay for child care directly or pay for referral services to help them find child care, or to offset the expense of building and operating a child care center. Larger businesses could apply, but some of the tax credits are capped at $30,000 and would only cover a sliver of the cost for big operations.
A 2022 change in state law expanded the types of businesses that could qualify for the rebates.
“It would help Kansas families. It would help our economy (and) it would help people get back to work,” Sen. Oletha Faust-Goudeau, a Wichita Democrat, said in 2022 when the law was amended.
It isn’t clear how much, or how little, the credit is used. The Kansas Department of Revenue tracks data on tax-credit usage. In a November report to lawmakers, it said the credit was used less than five times per year. But the most recent year that data was tabulated was 2021 — before the employer credit was amended.
Still, some lawmakers say it really isn’t used at all, and local groups recently created online tool kits to spread awareness about the credit.
One reason advocates suspect the credit is unused? Businesses may not have the resources to take advantage of it. One chamber of commerce said its members still couldn’t afford to offset child care costs even with the tax relief.
Businesses don’t need to build a child care center to benefit from this credit. Small companies could simply match the cost of child care for their employees. But larger investment is a good way to take advantage of the credit, said Jason Higgins, a tax manager at accounting and business advisory firm Adams Brown.
“If you’re really going to take advantage of this credit with big dollars,” he said, “you’re talking about having your actual own facility, either attached to your company or just down the street.”
What’s more, the state simply doesn’t do a great job advertising its existence, lawmakers and businesses told The Beacon.
“We’re well aware of it,” Higgins said. “(Accounting) firms are more up to date. We know where to go to find this stuff, but your typical company doesn’t.”
Higgins learned about the credit because he watches the Legislature, which isn’t something every small-business owner has time for. He said it can take businesses a few years to learn about credits because the state pushes out information slowly.
Chambers of commerce are working to share this information, though. Raising WyCo, a group of community and business leaders in the Kansas City area, has an online tool kit and tax break calculator.
The tool kit and credit calculator try to “demystify the tax credit for employers,” said Paula Neth, president and CEO of the Family Conservancy, a group trying to spread awareness about the credit.
Some businesses think they need to open their own facility to benefit, but companies can get thousands back without doing that.
Neth said businesses can use the credit to attract employees, invest in child care operations and help people get back into the workforce.
Paying for infant care is 1.3 times more expensive than in-state college tuition. That can keep parents, predominantly women, at home. Getting women back into the workforce can grow the Kansas and Missouri economies 15% by 2025, a study by the McKinsey Global Institute found.
That’s one reason Senate Minority Leader Dinah Sykes, a Lenexa Democrat, changed the tax credit in 2022.
She said businesses are an important part of the solution. Child care is an economic development tool, and she said increasing interest in the credit is both a form of small-business development and a cost savings to families.
“We have a workforce shortage,” Sykes said. “After COVID, a lot of women stayed home … This is one of those pieces of the puzzle to help move that forward.”