Form 8882: Credit For Employer-Provided Childcare Facilities And Services

Form 8882 is used by employers in the United States to claim the Credit for Employer-Provided Childcare Facilities and Services. This credit allows employers to reduce their federal income tax liability by a percentage of qualified expenses they incur for providing childcare benefits to their employees.

Who Can Use It?

Most businesses can use Form 8882, including corporations, partnerships, S corporations, and sole proprietorships. However, some exceptions apply:

  • Tax-exempt organizations involved in trade or business (not state and local governments) can use it.
  • Businesses that report the credit through pass-through entities (partnerships, S corporations, estates, or trusts) don't need a separate Form 8882. They can report it directly on Form 3800.

How Much is the Credit Worth?

The credit is calculated in two parts:

  • 25% of qualified childcare facility expenditures (costs for building, operating, or contracting for childcare services)
  • 10% of qualified childcare resource and referral expenditures (costs of providing employees with resources to find childcare)
  • There's a maximum credit limit of $150,000 per tax year.

What are Qualified Expenses?

There are two main categories of qualified expenses:

Qualified Childcare Facility Expenditures:

Costs associated with acquiring, constructing, renovating, or operating a childcare facility for employees' children. Examples include building costs, equipment, staff salaries, and facility maintenance.

Important: The basis (depreciable value) of the facility must be reduced by the amount of credit claimed.

Qualified Childcare Resource and Referral Expenditures:

Payments made to an organization to provide childcare resource and referral services to employees. These services help employees find suitable childcare arrangements.

What is a Qualified Childcare Facility?

  • Meets state/local licensing requirements for childcare facilities.
  • Primarily used for childcare (unless it's also the owner's residence).
  • Open to employee enrollment.
  • If the facility is the employer's main business, at least 30% of enrollees must be employees' dependents.
  • Services offered cannot favor highly compensated employees.

Important points to remember:

  • The credit cannot exceed the fair market value of the childcare provided.
  • The childcare facility must meet state and local licensing requirements.
  • The facility's primary purpose must be childcare (with some exceptions).
  • Enrollment must be open to employees' children.
  • Highly compensated employees cannot be favored when using the facility or services.

Do I need to include any additional forms with Form 8882?

In most cases, no additional forms are required. However, if your business is subject to the passive activity rules, you may need to complete Form 8582-CR, Passive Activity Credit Limitations, to determine the allowed credit.