Childcare Tax Credits in Arkansas: A Comprehensive Guide 2023

Navigating the complexities of childcare tax credits can be challenging for employers and families. Each state in the U.S. has unique offerings and rules that can significantly impact the financial well-being of its residents.

To learn about the 4 types of childcare tax credits, I put together a guide which you can read here.

In this article, we will explore the various tax credits available in Arkansas that are designed to alleviate some of the burdens of childcare costs.

State Child and Dependent Care Tax Credit (CDCTC)

• Available: Yes
• The Arkansas State Child and Dependent Care Tax Credit (CDCTC) is a nonrefundable tax credit that helps working families pay for child care expenses. The credit is equal to 20% of the federal CDCTC, up to a maximum of $210 for one child or dependent and $420 for two or more children or dependents. There is no income cutoff for the Arkansas CDCTC.To claim the Arkansas CDCTC, taxpayers must complete Schedule AR2441 of the Arkansas Individual Income Tax Return. They must also attach a copy of their federal Schedule 2, which calculates the federal CDCTC.The Arkansas CDCTC is a valuable tax credit for working families in Arkansas. It can help offset the high cost of child care and make it more affordable for parents to work.Here are some examples of how the Arkansas CDCTC can benefit working families:

• A single mother with an income of $30,000 and one child could receive a maximum Arkansas CDCTC of $162.
• A married couple with both parents employed full-time and two children could receive a maximum Arkansas CDCTC of $240.
• A family with three children and an income of $50,000 could receive a maximum Arkansas CDCTC of $420.

The Arkansas CDCTC is a great way for working families in Arkansas to save money on child care expenses. If you are eligible for the credit, be sure to claim it on your next tax return.

State Credit for Childcare Facilities (45F)

• Available: Yes

The Arkansas State Credit for Childcare Facilities (45F) is a nonrefundable income tax credit for businesses that establish or operate childcare facilities for their employees. The credit is equal to 3.9% of the annual salary of employees who are exclusively employed for the childcare program.

To qualify for the credit, the childcare facility must meet the following requirements:

• Be licensed or registered by the Arkansas Department of Human Services.
• Be open to employees of the taxpayer, and its use must not discriminate in favor of highly compensated employees.
• If the facility is the taxpayer's principal trade or business, at least 30% of its enrollment must be dependents of employees of the taxpayer.

The credit is capped at $150,000 per tax year. Businesses that claim the credit must file a Form AR1000E with the Arkansas Department of Finance and Administration.

The Arkansas State Credit for Childcare Facilities (45F) is a valuable incentive for businesses to provide childcare for their employees. It can help businesses attract and retain top talent, improve employee morale, and reduce absenteeism.

Here are some examples of how the Arkansas State Credit for Childcare Facilities (45F) can benefit businesses:

• A company with 100 employees and a childcare facility with 20 children could receive a maximum credit of $39,000.
• A company with 50 employees and a childcare facility with 10 children could receive a maximum credit of $19,500.
• A small business with 10 employees and a childcare facility with 5 children could receive a maximum credit of $3,900.

The Arkansas State Credit for Childcare Facilities (45F) is a great way for businesses in Arkansas to save money on childcare expenses and support their employees. If you are a business owner in Arkansas, be sure to consider establishing or operating a childcare facility for your employees.

State EITC

• Available: No
• Arkansas does not currently have a state-level Earned Income Tax Credit (EITC). However, there are a number of bills that have been introduced in the Arkansas legislature over the past few years that would create a state EITC. These bills have not yet passed, but they have gained support from a number of lawmakers.In 2017, a bill that would have created a state EITC made it through a committee vote in the House, but the bill ultimately failed to gain approval of the full House. The bill would have created a 5% refundable credit for low- and moderate-income workers.In 2023, a bill was introduced in the Arkansas House that would create a 10% refundable state EITC. The bill is currently in committee.A number of organizations in Arkansas are advocating for a state EITC. They argue that a state EITC would help low- and moderate-income workers and families, boost the economy, and reduce poverty.Here are some of the benefits of a state EITC:

• It would help low- and moderate-income workers and families keep more of their hard-earned money.
• It would boost the economy by increasing consumer spending.
• It would reduce poverty by helping families make ends meet.
• It would create jobs by encouraging businesses to hire and retain workers.
• It would improve the lives of children by helping families afford basic necessities such as food, housing, and healthcare.

A state EITC would be a valuable investment for Arkansas. It would help low- and moderate-income workers and families, boost the economy, and reduce poverty.

Other Childcare-Related Tax Benefits / State Programs

• Federal Tax Credit - Form 8882 - up to $150,000

Conclusion:

Navigating childcare tax credits, in Arkansas can be quite intricate. Its essential for both employers and families to have an understanding of these benefits. The state offers a Child and Dependent Care Tax Credit (CDCTC) that allows for up to $210 for one child or $420 for two or more children without any income limitations. This credit corresponds to 20% of the CDCTC. Is claimed on Schedule AR2441 when filing the state tax return. Additionally businesses can take advantage of the State Credit for Childcare Facilities (45F) which provides a tax credit to 3.9% of their employees salaries who work in their childcare program with an annual cap set at $150,000. To qualify for this credit facilities must be. Open to all employees without any preference towards compensated individuals. Furthermore at 30% of enrollment should consist of dependents from the businesss employees. Although Arkansas does not currently have a state level Earned Income Tax Credit (EITC) there are proposed bills aiming to establish one indicating growing interest supported by advocacy groups who emphasize its economic and social advantages. These various tax credits and proposed programs demonstrate a commitment towards assisting families and businesses, in managing childcare expenses while also potentially bolstering the states workforce and economy.

More Resources

Read my high level guide to employer / employee childcare tax credits.

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Disclaimer: This article is for informational purposes only and shouldn't be seen as financial or legal advice. Tax rules change and can be complex, so it's always a good idea to check with a professional for your specific needs. We're not responsible for how this information is used.