Child care tax credits set to help Nebraska families, providers

Some child care programs and families in Nebraska will soon be able to begin applying for tax credits as part of the state’s “most expansive” solution to the ongoing child care crisis in recent years, according to officials.

Both the School Readiness Tax Credit Act and the Child Care Tax Credit Act were passed by the Nebraska Legislature in 2023 to help offset financial pressures many families and providers have been facing in recent years — and are now in the beginning stages of officially being rolled out.

Through the acts, the Legislature voted to allocate $25 million each year to provide those who qualify with tax credits, which will be handed out on a first-come, first-served basis until the allocated funding for that given year runs out.

Both tax credit acts are split into two parts, each having refundable and nonrefundable pieces. A refundable tax credit is a credit you can get as a refund even if you don’t owe any tax. A nonrefundable credit can only reduce a taxpayer’s liability to zero.

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Under the Child Care Tax Credit Act, parents utilizing child care can apply for refundable tax credits, while nonrefundable credits will be available to individuals and entities, like businesses and philanthropic organizations that make contributions to help improve the availability of child care options in Nebraska.

The School Readiness Tax Credit Act will give staff members of licensed child care programs and self-employed child care professionals, like those who operate licensed in-home centers, the opportunity to apply for a refundable credit. The act also provides nonrefundable credits to owners of child care programs who are eligible.

Of the $25 million of allocated funding, $15 million will go toward providing parents with refundable credits; $2.5 million will go to those who contribute to the child care industry; and $7.5 million will go toward providing professionals and programs with both refundable and nonrefundable credits.

“This is the most expansive and most robust tax credit program that’s available for the child care industry and for parents in the United States. This is probably one of the biggest things that we were able to do for the child care space in the last decade, the last few decades,” said Elizabeth Everett, deputy director of First Five Nebraska.

“For many folks, this is a huge relief, not only for those parents needing access to care, but also for those child care employees and those providers that have a hard time financially making ends meet,” she said.

Child care programs down 12% since 2019

As a child care crisis continues to hinder the industry nationwide, child care programs across Nebraska have declined by 12% since 2019, according to First Five Nebraska.

In Lincoln alone, seven child care centers have closed down since last November and an eighth has plans to close soon. In total, approximately 1,000 kids in Lincoln have been or will be affected by the eight closures.

The ongoing child care crisis played a big role in leading Sen. Eliot Bostar of Lincoln to champion the child care tax credit bill last year.

Eliot Bostar

By putting an emphasis on child care, Bostar said the state will have the ability to not only aid an industry currently facing a plethora of hardships, but by doing so, it can also help grow Nebraska’s workforce as a whole.

“The importance of child care to our state really cannot be overstated. It is essential for a state like Nebraska — which has significant workforce challenges and really tremendous opportunities for employment — to be able to maximize the population that is interested in going into the workforce and contributing to the growth and the development of our state,” he said. “Currently, one of the primary drivers of what’s holding us back is lack of child care access. It’s an industry that is currently struggling.”

To qualify for refundable credits through the Child Care Tax Credit Act, families with annual incomes up to $150,000 must have at least one child who is 5 years old or younger enrolled in either a licensed child care program or who receives care from a license-exempt child care provider who participates in the child care subsidy program.

Families with a household income less than or equal to 100% of the federal poverty level can qualify for the credits if they have a child age 5 or younger even if the child is not cared for outside the home.

New child care tax credits

CHILD CARE TAX CREDIT ACT

Refundable tax credits

Who is eligible? Families with annual incomes of up to $150,000 who have at least one child who is 5 years old or younger enrolled in either a licensed child care program or who receives care from a license-exempt child care provider who participates in the child care subsidy program.

Size of credit: $1,000-$2,000

When can families apply? Eligible families are able to begin applying to the refundable Child Care Tax Credit at the end of the year on the Nebraska Department of Revenue’s website.

Nonrefundable tax credits

Who can apply? Businesses and individuals who have completed a qualifying contribution to the child care industry. This can include contributions like helping a program purchase learning materials, providing tuition assistance for families in need or offering referral services to connect families to child care providers.

Size of credit: Either 100% or 75% of the qualifying contribution.

When can contributors apply? Entities and individuals who have made contributions to the child care industry can apply once they have received receipts noting their contributions on the Nebraska Department of Revenue’s website.

SCHOOL READINESS TAX CREDIT ACT

Refundable tax credits

Who is eligible? To qualify for refundable tax credits under the School Readiness Tax Credit Act, child care staff members must have been employed for at least six months at a child care program participating in Step Up to Quality, have completed 12 hours of Nebraska Department of Education approved training and be registered in the Nebraska Early Childhood Professional Record System.

Size of credit: $2,300-$3,500

When can people apply? Child care professionals can apply for these credits once they’ve met the eligibility requirements.

Nonrefundable tax credits

Who is eligible? Owners of child care programs who have a program rated at a Step One or above in the Step Up to Quality ranking system, as well as a child care subsidy contract with the state.

Size of credit: $400-$1,200

When can programs apply? Program owners can begin applying at the start of January.

Changes expected as campaign rolls out

While the tax credit programs offer a variety of benefits, there are still several challenges officials expect to face as the campaign continues to roll out, according to Michael Medwick, the strategic communications manager at First Five Nebraska.

Medwick said the organization is anticipating there will be some issues with the online application process, because not everyone eligible to apply may have access to technology. He also noted that there may be some language barriers, which they’re trying to combat by having materials available in both English and Spanish. Additionally, the application process currently has multiple steps and may need to be streamlined in future years to make it easier for applicants.

For now, though, Medwick said First Five Nebraska plans to keep an eye on any successes or shortfalls to the programs and go from there.

Bryan Slone

Journal Star file photo

“All we can do is make sure that we’re gathering lessons learned as this campaign rolls out, collect that information and do what we can to improve the outreach in year two,” he said.

Regardless, the tax credit programs are a big step in the right direction when it comes to a solution to the child care crisis, Nebraska State Chamber of Commerce & Industry President Bryan Slone said, but it won’t be a cure-all. Each step taken by the state is a step toward Nebraska being a leader in the child care industry, he added.

“We don’t have to be perfect, but we have to be better than 49 other states. From a chamber standpoint, these kinds of things help us be better than the other 49 states because all 49 states have these issues. We’ve just got to do it better,” he said. “And I think this starts us down the right track.”

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