Giving to charity is important to many Colorado residents, especially when they have a deep connection to the cause.
The additional benefit of receiving a tax incentive is welcome but often not the driving motivational force. While most understand the incentives offered by the federal government for charitable donations, far fewer are aware of Colorado programs that offer additional savings. One such program is called the Colorado Childcare Contribution Credit, which offers a state tax credit of up to 50% for qualifying contributions and donations. To help clients, prospects and others learn more about the credit, Hanson & Co. has provided a summary of key details below.
A taxpayer who makes a qualifying monetary contribution to promote childcare in Colorado can claim an income tax credit of up to 50% of the qualifying contribution. The credit is available to individuals (residents and non-residents), estates, trusts, partnerships and even corporations.
There are several conditions that must be met for contributions to be considered eligible, including:
- All contributions must be monetary (in-kind contributions do not qualify for this program)
- The contribution must be made with the purpose of promoting childcare in Colorado
- The contribution needs to be made to an eligible licensed childcare facility, approved facility school or registered or grandfathered childcare program
A licensed child care or facility school must be certified by the Colorado Department of Human Services. They include childcare centers, child placement centers, family child care homes, foster care homes, homeless youth shelters and residential treatment centers.
Contributions are considered ineligible if they are made to a childcare facility where the taxpayer has a financial interest, contribution is made to a for-profit business not directly related to improvements of childcare facilities, services or improvement of staff salaries or quality of childcare or if it is made after December 31, 2019.
Child Care Purpose
To receive credit, contributions must be for an eligible “child care purpose.” The state provides very specific guidance regarding their definition of this term. Except in the case of grandfathered programs, the credit is only allowed for contributions made to promote child care for children age 12 and under. Eligible contributions include:
- Donating money for the establishment and operation of a licensed childcare facility, approved facility school, childcare center or facility school that uses the donation to provide childcare
- Pooling money and donating it for the establishment of a licensed childcare facility
- Donating money to establish a grant or loan program to help parents requiring financial assistance for childcare
- Donating money to a training program for childcare providers or for an information distribution program that assists parents with details and referral services for needed care
The credit is equal to 50% of the taxpayer’s qualifying contributions made during the tax year. Taxpayers cannot claim a credit that exceeds $100,000 in a year. The credit is nonrefundable, but any remaining benefit can be carried forward for a period of no more than five years. The credit must be used in the earliest tax year possible according to regulations.
The Colorado Childcare Contribution Credit offers a valuable tax incentive, especially when combined with existing federal programs. If you have questions about the credit and how to qualify, or if you need assistance with other tax issues, Hanson & Co. can help. For additional information please call us at (303) 388-1011, or click here to contact us. We look forward to speaking with you soon.