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Understanding the Child Care Contribution Tax Credit

Drew Harper, CFA, CFP®
December 5, 2019

The Colorado Child Care Contribution Tax Credit (CCTC) was established to encourage greater private support of Colorado child care programs. It enables qualified child care providers to receive financial donations directly from individuals and businesses.


For Colorado residents, the CCTC can offer significant tax savings. You can make a qualifying contribution (gift) to promote child care in Colorado and claim a state income tax credit worth 50% of the contribution. Plus, you may get a deduction on your federal and Colorado state return as well.

CCTC Requirements

Not all taxpayers will qualify for the deductions or credit.

  • The contribution must be monetary (non-cash donations of stocks or property like clothing or toys do not qualify for the credit).
  • The credit is allowed only for contributions that promote child care in Colorado, usually only for children age 12 or younger.
  • Two categories of organizations are qualified to receive contributions: licensed and unlicensed.
    • Child care programs licensed by the Colorado Department of Human Services:
      • Child care centers,
      • Child placement agencies,
      • Family child care homes,
      • Foster care homes,
      • Homeless youth shelters,
      • Residential child care facilities,
      • Secure residential treatment centers,
      • Qualifying contributions can also be made to any facility school approved by the Facility Schools Board that is also affiliated with a licensed or certified hospital in Colorado and is also a nonprofit organization.
    • Unlicensed child care programs that have completed Form DR 1318, Unlicensed Care Organization Registration with the Colorado Department of Revenue (unlicensed child care programs must provide for the care of five or more children who are not related to the owner, operator or manager to receive and expend the funds that qualify for the tax credit).

 

Additional restrictions:

  • The credit is nonrefundable, meaning the maximum credit is the lower of 50% of your contribution or your Colorado tax liability (before allowing for other credits, estimated payments or withholdings). You can carry forward any unused credits to the next 5 tax years.
  • In order to receive the tax deductions on your federal return, you must be able to itemize deductions (you total itemized deductions must exceed the standard deduction). This is true for all charitable contributions, not just this credit.
  • The maximum credit you can claim is $100,000 per year.

Important Note: The contribution must be made on or before December 31, 2019.

Under prior law, these contributions were deductible as charitable contributions for federal and state income tax purposes. In addition, a taxpayer could credit 50 percent of the contribution against their Colorado state income tax liability. These deductions and credits substantially reduced the after-tax cost of such donations to taxpayers.


At the end of August, the IRS issued proposed regulations to limit the deductibility for federal purposes of charitable donations that would qualify for a state or local tax credit like CCTC. At a result, the CCTC is still available for the 50 percent credit, but the charitable deduction must be reduced by the credit amount.

For illustrative purposes only.

There is an exception, however: A taxpayer does not have to reduce their federal charitable deduction if the state or local tax credit for the donation does not exceed 15 percent of the taxpayer’s payment.


You may be able to combine QCDs with the CCTC, but we highly recommend you speak with a tax professional regarding your situation.

Consult with an Expert

Everyone’s tax situation is different and should be individually studied. While the CCTC can be a powerful tool, consult with your tax professional to discuss how the credit may be best used to your advantage.

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The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Links are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. While we are familiar with the tax provisions of the issues presented at this seminar, as Financial Advisors of RJFS, we are not qualified to render advice on tax matters. You should discuss tax matters with the appropriate professional.

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