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Understanding the Child Care Contribution Tax Credit: A Follow Up

Drew Harper, CFA, CFP®
May 28, 2020

In December 2019, we introduced you to the Colorado Child Care Contribution Tax Credit (CCTC) which was established to encourage greater private support of Colorado child care programs. The CCTC 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.


The December 2019 CCTC blog post discussed the Federal Deduction offset for the amount of Colorado State Tax Credit received when you make a gift of cash or securities. The language in Income 35: Child Care Contribution Credit defines “monetary contributions” and includes qualifying charitable distributions (QCDs) from individual retirement accounts (IRAs). This is significant for taxpayers over age 70 1/2 who have a charitable inclination; they can support charities while also avoiding ordinary income on their IRA distribution AND take advantage of the Colorado State Tax Credit!


Here are two examples which illustrate a lower net cost for taxpayers to donate via QCD for the CCTC versus using cash for the CCTC:

For illustrative purposes only.

For illustrative purposes only.

Now, thanks to the 2020 Required Minimum Distribution (RMD) holiday available through the CARES Act, there is a wonderful opportunity to donate to charity using your IRA in lieu of cash.

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. Please note this doesn’t apply in the case of QCDs since you DO NOT receive a Federal Deduction!
  • The maximum credit you can claim is $100,000 per year.

Consult with an Expert

Remember, 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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Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

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