child care tax credits

New Research Supports Proven Two-Gen Strategy

August 3, 2015 — There is no doubt that the Earned Income Tax Credit is one of Michigan’s most effective two-generation program strategies. It is proven to not only help working parents, but lifts more children out of poverty than any other public program and it improves their health and education outcomes. Helping families, it also helps communities by stimulating local economies. A sound investment for sure, based on research and evidence.

Now, there is new research pointing to its heavy lifting for moving more people out of poverty in ways greater than previously thought. The research, reported by the Center for Budget for Policy Priorities, points to impressive results in increasing employment and reducing welfare use for single mothers. In one study of single mothers (ages 24-48) with children and no college degree, researches found the number of such families lifted out of poverty nearly doubled due to the impact of the EITC. Sounds like a strategy worthy of investment?

Despite its proven effectiveness, the state EITC is on the list of funding sources that could be redirected from helping children and families and toward fixing Michigan’s miserable roads. This was a bad idea when it was raised in the dog days of the previous state Legislature, then becoming a cornerstone of the May 5 Proposal 1 campaign which opposed cutting EITC to fix roads, and it’s a bad idea yet again.

While Michigan’s EITC isn’t as sizeable as it once was, it is certainly true that combined with the federal credit – which amounts to $6,242 for families with three or more children — it helps supplement low-wage earners and makes a real difference in many households.

Overall, there are 820,000 families with 1 million children who benefit from the state’s EITC and many are single parents. Working full-time at minimum wage, a single parent with two children receives a tax credit of about $300 annually. Again, it wouldn’t be viewed as a windfall to someone in the middle- and upper-income groups, but it can amount to a full paycheck for the working poor.

Several years ago, the state’s EITC was more substantial, but in 2011 the then-new Snyder administration cut the credit from 20 percent to 6 percent of the federal EITC rate, effectively raising $285 million in taxes from the state’s lowest wage earners. Today, the average Michigan EITC return amounts to $143. Despite the cut in the state rate, the current state EITC alone keeps 7,000 working families out of poverty and helps all receiving families with basic needs or debt repayment.

Able to keep more of their earnings, families who qualify tend to spend more of their income on basic necessities, such as housing, child care and transportation, spreading those funds among local businesses and services, thereby strengthening local economies, as well. For a married couple with two children and adjusted gross income of $16,300, they would receive a federal EITC of $5,372 and a state EITC of $322. A single parent with two children and an adjusted gross income of $30,000 would receive a federal EITC of $2,741 and a Michigan EITC of $164.

In this case, what’s good for local working families is good for communities and the state overall. So, how can you help?

  • • Talk to your elected lawmakers and urge them to continue to invest in the Michigan EITC and help keep more dollars in the pockets of working families who need them most.
  • • Employ the facts, using important data available about Michigan’s EITC and emerging research.
  • • And use your own observations about your community and its residents in stating your case. Every community is different and you know best the struggles faced by families around you in making ends meet.
  • • Most of all, remember that public policy decisions require public input. Local lawmakers rely on hearing from constituents like you to help make up their minds about decisions like the EITC.

 

Other resources:

Save Our EITC

An analysis of the Earned Income Tax Credit by the Michigan Office of Revenue and Tax Analysis, Michigan Department of Treasury (February 2015)

‘’Understanding the Impact of the State EITC infographic, the Community Economic Development Association of Michigan”

 

— Teri Banas is a communications consultant working with Michigan’s Children.

Child Care Tax Credits Part 4 – Supporting Michigan Businesses

August 21, 2014 – This is the fourth and final blog in a series about opportunities to improve the quality of Michigan’s child care system through tax credits.  This week, I’m going to blog more in-depth about Louisiana’s tax credits for businesses and what a similar model could do for Michigan.

In Louisiana, businesses are eligible for a tax credit in several ways – one for contributions to Child Care Resource and Referral Agencies, and another specifically for business who support employees’ child care needs.  I’m going to talk a bit more about the business credit that helps employees.  Employers can support their employees’ child care needs in three ways:

  1. By making payments directly to a child care facility for employees’ children;
  2. By purchasing child care slots provided or reserved for employees’ children; or
  3. By constructing, renovating, expanding, or repairing a child care center, purchasing equipment, or maintaining or operating a center.

Businesses can receive a tax credit as a percentage of their child care related investments based on the quality rating of the facility that they are investing in.  Because high quality child care costs are so expensive, shifting some of this financial burden off low-income working families will provide a significant benefit to both employees and employers.  For businesses, this type of tax credit will have significant benefits for them as it relates to their day-to-day operations and ultimate success.  With more women in the workforce than ever before and low-income families reliant on all adults in the household working to make ends meet, the needs of working families must be addressed to ensure that businesses can thrive.  We know that inconsistent child care results in more missed work days by parents, which is particularly problematic for low-income parents who struggle to afford consistent child care.  Offering on-site child care or a child care benefit to a high quality program will ensure that staff have reliable child care that will allow them to be more productive at work.  And, offering a child care benefit will allow businesses to attract and retain quality staff.  Additionally, a tax credit for donations made for infrastructure improvements of already existing child care programs provides an enticing incentive for businesses to invest in those quality improvement efforts.

For families, this business tax credit will increase access to higher quality, reliable child care that supports their children’s learning and development.  High quality child care can ensure that young children are building the foundational base they need to succeed in school, and help school-aged children stay academically engaged and on-track. In short, a business tax credit will lead to more productive employees whose children are in high quality child care settings, which will ensure that businesses thrive today and that the workforce of tomorrow will be prepared for Michigan’s global economy.

If high quality child care is something you, your family or your neighbors struggle to access, please consider talking to candidates running for public office about this issue.

Learn more about opportunities through child are tax credits in our Issues for Michigan’s Children publication.

-Mina Hong

Child Care Tax Credits Part 3 – Supporting Child Care Teachers and Directors

August 13, 2014 – This is the third in a series of blogs about opportunities to improve the quality of Michigan’s child care system through tax credits.  This week, I’m going to blog more in-depth about Louisiana’s tax credits for child care teachers and directors and what a similar model could do for Michigan.

In Louisiana, child care teachers and directors are eligible for a tax credit if they work for a licensed child care facility that participates in the quality rating system and are enrolled in the Louisiana Pathways Child Care Career Development System.  The voluntary Pathways system is a mechanism for training and education for child care professionals that provides scholarships and tracks training received.  The refundable tax credit is based on the education level attained ranging from $1,606 to $3,212.  In essence, this tax credit is a wage supplement or salary bonus since the credit is provided directly to the child care teacher or director.

Here in Michigan, like the rest of the country, our child care professionals are sorely underpaid for the invaluable work they do.  We know that, across-the-board, programs struggle to pay child care professionals a livable wage.  For teachers working in programs that serve children in the state’s child care subsidy program, this issue is exacerbated.  A child care tax credit for professionals similar to the Louisiana model would provide an opportunity for our child care teachers and directors to continue on a path of professional development – increasing the quality of the care that Michigan children are in – while also providing some salary boost to support those personal investments.

Michigan has a structure set-up to help child care professionals achieve higher education credentials through the TEACH scholarship program.  The TEACH scholarship covers the cost of tuition – whether it be for a single early childhood education course or for individuals seeking a Child Development Associate, an Associate degree, or a Bachelor’s degree – as well as the cost of books and a travel stipend.  However, TEACH does not provide any ongoing salary bonuses for teachers and directors who have attained higher education levels.  A child care tax credit similar to Louisiana would provide an opportunity for teachers and directors to seek professional development opportunities and allow for some financial incentive to support those efforts, better supporting Michigan’s child care professionals and improving the quality of child care.

If high quality child care is something you, your family or your neighbors struggle to afford, please consider talking to candidates running for public office about this issue.

Learn more about opportunities through child are tax credits in our Issues for Michigan’s Children publication.

-Mina Hong

Child Care Tax Credits Part 2 – Supporting Child Care Providers

July 31, 2014 – This is the second in a series of blogs about opportunities to improve the quality of Michigan’s child care system through tax credits.  This week, I’m going to blog more in-depth about Louisiana’s child care tax credits for child care providers and what a similar model could do for Michigan.

In Louisiana, for-profit and non-profit child care centers who serve children in the foster care system or children who participate in the child care subsidy program are eligible for a refundable tax credit.  The credit is based on the average monthly number of children served and the quality rating of the child care center and ranges from $750 per eligible child for a 2-star rated program to $1,500 per child for a 5-star rated program.

Here in Michigan, our Quality Rating and Improvement System known as Great Start to Quality has two levels – the five-star rating for licensed programs and the three-tier rating for unlicensed family, friend and neighbor care.  Michigan could structure its child care credits similar to the Louisiana model for licensed programs.  And, to ensure that families can maintain choice in their child care provider, we could also provide a tax credit for families who choose family, friend, or neighbor care at the second or third tier.  This type of tax credit would incentivize child care providers to increase the quality of their care by allowing providers to target some of the investment from this refundable tax credit towards ongoing quality improvement needs, which we know to be expensive.  Quality improvements costs go towards things like employing credentialed staff, ongoing professional development, maintaining optimal teacher-to-child ratios, etc. – costs that are typically ongoing.  And, this tax credit would incentivize providers to move up the quality rating scale so that they can receive larger credits.

Michigan should also consider aligning the eligibility requirement for this tax credit with our early childhood system already in place – specifically, with eligibility for Michigan’s Great Start Readiness Program.  This way, we can bolster our state’s significant investment in high quality preschool by increasing the quality of other settings that serve those children and others.  Michigan legislators have already identified that children who have factors that place them at-risk – children living in families with low- and moderately low-income, children in foster care, children who are homeless, and children in special education – benefit the most from access to high quality early care and education.  Similarly, a tax credit should go to providers who serve those same populations from birth all the way through age 12.  Aligning the tax credit eligibility with GSRP would incentivize the highest quality child care programs to serve Michigan’s most challenged families to ensure the best possible outcomes for kids.

A note about school-aged care.  School-aged child care (i.e. before- and after-school and summer care) currently isn’t included in Great Start to Quality, but efforts to infuse those programs into the system are underway.  Any child care tax credit system must include those programs so that school-aged children could also benefit from high quality child care settings that keep them academically on-track and engaged in their education.

If high quality child care is something you, your family or your neighbors struggle to afford, please consider talking to candidates running for public office about this issue.

Learn more about opportunities through child care tax credits in our Issues for Michigan’s Children publication.

-Mina Hong

Child Care Tax Credits Part 1 – Supporting Michigan’s Working Families

July 24, 2014 — Last week, I blogged about the concept of tax credits to support the quality of Michigan’s child care system.  The next series of child care tax credit blogs that I’ll write will break down each of Louisiana’s four tax credits so that we can better understand how their model if replicated in Michigan could assist families, child care providers, child care teachers and directors, and businesses here in our own state.  First, I’ll focus on direct assistance for families.

As I laid out last week, the family child care tax credit allows families to receive a refundable credit for children enrolled in a child care program that has a rating of at least two out of five stars in the state’s Quality Rating and Improvement System.  This credit increases in value as families access higher-rated child care programs, and is dependent on the number of children in the family in a two-star rated program or higher.  Being refundable allows the lowest-income families – those making $25,000 a year or less in Louisiana – to receive a check in the mail for the amount of their credit.  Families making more than $25,000 can apply their credit to their tax liability.

Here in Michigan, we know that child care costs vary significantly with multiple factors influencing cost including the age of the child, the type of care (i.e. a child care center, family-run group home, or someone caring for a family member), and the quality of care.  For Michigan’s Children, ensuring that children have access to high quality child care is paramount – regardless of the child’s age or whether they are in a child care center or being watched by grandma.  We know that high quality child care is more costly for multiple factors including the ongoing training needed by child care teachers and directors, curricula that may be used, personnel costs as it relates to staffing with appropriate credentials or exceeding minimum licensing requirements as it relates to teacher-child ratios, appropriately engaging and partnering with parents and communities, etc.

A child care tax credit for families will reduce some of the financial burden associated with accessing higher quality care, and may be just the incentive that parents need to opt for higher quality care that will better support their children’s learning and development.  While there is a federal tax credit in place for child care that is not refundable, the State of Michigan currently provides no tax relief to families who need child care, so a model similar to Louisiana’s would be welcomed.

If high quality child care is something you, your family or your neighbors struggle to afford, please consider talking to candidates running for public office about this issue.

Learn more about opportunities through child care tax credits in our Issues for Michigan’s Children publication.

-Mina Hong

Supporting Michigan’s Working Families

July 18, 2014 — Child care is expensive.  Hands down, if you are a parent, you know that one of the most significant costs that you will bare right from the get-go is the cost of child care.  And yet parents want and need access to high quality child care that supports their children’s learning and development while they earn money to support their families.  For Michigan’s struggling families, high quality child care can help their kids start kindergarten with the skill set they need to succeed in school.  As for the child care industry, they struggle to pay for costly quality improvements since many quality indicators require ongoing costs to maintain.

One strategy to increase the quality of and access to child care is through tax credits.  Louisiana provides a fabulous tax credit model built upon its Quality Rating and Improvement System (QRIS) that provides financial incentives that help families access higher quality child care and encourages providers to increase the quality of their programs.  Called the School Readiness Tax Credit, the Louisiana model supports and bolsters the child care system by providing refundable tax credits, which allows taxpayers to receive a check for the amount of the credit if they have no tax obligation.  This is particularly important for nonprofit child care providers and for low-income families who benefit the most from these credits.

Louisiana’s School Readiness Tax credits are as follows:

  1. Families can receive a tax credit for kids enrolled in a child care program that has a rating of at least two out of five stars in the QRIS.  The tax credit increases in value as families access higher-rated child care programs.
  2. Child care providers who participate in the QRIS are eligible for a tax credit based on the number of stars they earn and the number of children they serve who are subsidized by their state’s child care subsidy system or are in foster care.
  3. Child care teachers and directors are eligible to receive a tax credit if they teach in a child care program that participates in the QRIS, and is based on the level of education the individual has attained.
  4. Businesses that provide financial support to child care programs that participate in the QRIS – either through donations to support their infrastructure or to support their employees’ child care – are eligible for a credit with its value based on the star rating of the child care program.  Businesses can also receive a credit for donations made to child care resource and referral agencies.

Michigan is well-poised to implement a child care tax credit system similar to the Louisiana model, with our QRIS known as Great Start to Quality already in place.  Each four of these pieces would provide significant benefits to families, child care providers, child care teachers and directors, and our local businesses to support families while ensuring our economy can continue to rebuild.  Keep your eyes out for a series of blogs focused on each component of Louisiana’s School Readiness Tax Credit and how a similar system could benefit Michigan children and families.

Learn more about opportunities through child care tax credits in our latest Issues for Michigan’s Children publication.

-Mina Hong

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