26 U.S.C. § 45F — Employer-provided child care credit

Page 275 TITLE 26—INTERNAL REVENUE CODE § 45F In the case of the following taxable year beginning after the taxable year during which plan is established with respect to the eligible employer: The applicable percentage shall be: 2nd ................................................ 75% 3rd ................................................. 50% 4th ................................................. 25% Any taxable year thereafter ......... 0% (4) Determination of eligible employer; number of employees For purposes of this subsection, whether an employer is an eligible employer and the num- ber of employees of an employer shall be de- termined under the rules of subsection (c), ex- cept that paragraph (2) thereof shall only apply to the taxable year during which the eli- gible employer plan to which this section ap- plies is established with respect to the eligible employer. (Added Pub. L. 107–16, title VI, § 619(a), June 7, 2001, 115 Stat. 108; amended Pub. L. 107–147, title IV, § 411(n)(1), Mar. 9, 2002, 116 Stat. 48; Pub. L. 116–94, div. O, title I, § 104(a), Dec. 20, 2019, 133 Stat. 3147; Pub. L. 117–328, div. T, title I, §§ 102(a)–(c), 111(a), Dec. 29, 2022, 136 Stat. 5277, 5278, 5293.) INFLATION ADJUSTED ITEMS FOR CERTAIN YEARS For inflation adjustment of certain items in this section, see Internal Revenue Notices listed in a table under section 401 of this title. Editorial Notes AMENDMENTS 2022—Subsec. (d)(3)(A). Pub. L. 117–328, § 111(a), sub- stituted ‘‘effective with respect to the eligible em- ployer’’ for ‘‘effective’’. Subsec. (e)(2). Pub. L. 117–328, § 102(c), amended par. (2) generally. Prior to amendment, text read as follows: ‘‘No deduction shall be allowed for that portion of the qualified startup costs paid or incurred for the taxable year which is equal to the credit determined under sub- section (a).’’ Subsec. (e)(4). Pub. L. 117–328, § 102(a), added par. (4). Subsec. (f). Pub. L. 117–328, § 102(b), added subsec. (f). 2019—Subsec. (b)(1). Pub. L. 116–94 amended par. (1) generally. Prior to amendment, par. (1) read as follows: ‘‘$500 for the first credit year and each of the 2 taxable years immediately following the first credit year, and’’. 2002—Subsec. (e)(1). Pub. L. 107–147 substituted ‘‘sub- section (m)’’ for ‘‘subsection (n)’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2022 AMENDMENT Pub. L. 117–328, div. T, title I, § 102(d), Dec. 29, 2022, 136 Stat. 5278, provided that: ‘‘The amendments made by this section [amending this section] shall apply to tax- able years beginning after December 31, 2022.’’ Pub. L. 117–328, div. T, title I, § 111(b), Dec. 29, 2022, 136 Stat. 5293, provided that: ‘‘The amendment made by this section [amending this section] shall take effect as if included in the enactment of section 104 of the Set- ting Every Community Up for Retirement Enhance- ment Act of 2019 [div. O of Pub. L. 116–94, see Effective Date of 2019 Amendment note below].’’ EFFECTIVE DATE OF 2019 AMENDMENT Pub. L. 116–94, div. O, title I, § 104(b), Dec. 20, 2019, 133 Stat. 3147, provided that: ‘‘The amendment made by this section [amending this section] shall apply to tax- able years beginning after December 31, 2019.’’ EFFECTIVE DATE OF 2002 AMENDMENT Amendment by Pub. L. 107–147 effective as if included in the provisions of the Economic Growth and Tax Re- lief Reconciliation Act of 2001, Pub. L. 107–16, to which such amendment relates, see section 411(x) of Pub. L. 107–147, set out as a note under section 25B of this title. EFFECTIVE DATE Section applicable to costs paid or incurred in tax- able years beginning after Dec. 31, 2001, with respect to qualified employer plans first effective after such date, see section 619(d) of Pub. L. 107–16, as amended, set out as an Effective Date of 2001 Amendment note under sec- tion 38 of this title. § 45F. Employer-provided child care credit (a) In general For purposes of section 38, the employer-pro- vided child care credit determined under this section for the taxable year is an amount equal to the sum of— (1) 25 percent of the qualified child care ex- penditures, and (2) 10 percent of the qualified child care re- source and referral expenditures, of the taxpayer for such taxable year. (b) Dollar limitation The credit allowable under subsection (a) for any taxable year shall not exceed $150,000. (c) Definitions For purposes of this section— (1) Qualified child care expenditure (A) In general The term ‘‘qualified child care expendi- ture’’ means any amount paid or incurred— (i) to acquire, construct, rehabilitate, or expand property— (I) which is to be used as part of a qualified child care facility of the tax- payer, (II) with respect to which a deduction for depreciation (or amortization in lieu of depreciation) is allowable, and (III) which does not constitute part of the principal residence (within the meaning of section 121) of the taxpayer or any employee of the taxpayer, (ii) for the operating costs of a qualified child care facility of the taxpayer, includ- ing costs related to the training of em- ployees, to scholarship programs, and to the providing of increased compensation to employees with higher levels of child care training, or (iii) under a contract with a qualified child care facility to provide child care services to employees of the taxpayer. (B) Fair market value The term ‘‘qualified child care expendi- tures’’ shall not include expenses in excess of the fair market value of such care. (2) Qualified child care facility (A) In general The term ‘‘qualified child care facility’’ means a facility— (i) the principal use of which is to pro- vide child care assistance, and Page 276 TITLE 26—INTERNAL REVENUE CODE § 45F (ii) which meets the requirements of all applicable laws and regulations of the State or local government in which it is located, including the licensing of the fa- cility as a child care facility. Clause (i) shall not apply to a facility which is the principal residence (within the mean- ing of section 121) of the operator of the fa- cility. (B) Special rules with respect to a taxpayer A facility shall not be treated as a quali- fied child care facility with respect to a tax- payer unless— (i) enrollment in the facility is open to employees of the taxpayer during the tax- able year, (ii) if the facility is the principal trade or business of the taxpayer, at least 30 per- cent of the enrollees of such facility are dependents of employees of the taxpayer, and (iii) the use of such facility (or the eligi- bility to use such facility) does not dis- criminate in favor of employees of the tax- payer who are highly compensated em- ployees (within the meaning of section 414(q)). (3) Qualified child care resource and referral expenditure (A) In general The term ‘‘qualified child care resource and referral expenditure’’ means any amount paid or incurred under a contract to provide child care resource and referral serv- ices to an employee of the taxpayer. (B) Nondiscrimination The services shall not be treated as quali- fied unless the provision of such services (or the eligibility to use such services) does not discriminate in favor of employees of the taxpayer who are highly compensated em- ployees (within the meaning of section 414(q)). (d) Recapture of acquisition and construction credit (1) In general If, as of the close of any taxable year, there is a recapture event with respect to any quali- fied child care facility of the taxpayer, then the tax of the taxpayer under this chapter for such taxable year shall be increased by an amount equal to the product of— (A) the applicable recapture percentage, and (B) the aggregate decrease in the credits allowed under section 38 for all prior taxable years which would have resulted if the quali- fied child care expenditures of the taxpayer described in subsection (c)(1)(A) with respect to such facility had been zero. (2) Applicable recapture percentage (A) In general For purposes of this subsection, the appli- cable recapture percentage shall be deter- mined from the following table: If the recapture event occurs in: The appli- cable re- capture percentage is: Years 1–3 ............................................. 100 Year 4 .................................................. 85 Year 5 .................................................. 70 Year 6 .................................................. 55 Year 7 .................................................. 40 Year 8 .................................................. 25 Years 9 and 10 ...................................... 10 Years 11 and thereafter ....................... 0. (B) Years For purposes of subparagraph (A), year 1 shall begin on the first day of the taxable year in which the qualified child care facil- ity is placed in service by the taxpayer. (3) Recapture event defined For purposes of this subsection, the term ‘‘recapture event’’ means— (A) Cessation of operation The cessation of the operation of the facil- ity as a qualified child care facility. (B) Change in ownership (i) In general Except as provided in clause (ii), the dis- position of a taxpayer’s interest in a quali- fied child care facility with respect to which the credit described in subsection (a) was allowable. (ii) Agreement to assume recapture liabil- ity Clause (i) shall not apply if the person acquiring such interest in the facility agrees in writing to assume the recapture liability of the person disposing of such in- terest in effect immediately before such disposition. In the event of such an as- sumption, the person acquiring the inter- est in the facility shall be treated as the taxpayer for purposes of assessing any re- capture liability (computed as if there had been no change in ownership). (4) Special rules (A) Tax benefit rule The tax for the taxable year shall be in- creased under paragraph (1) only with re- spect to credits allowed by reason of this section which were used to reduce tax liabil- ity. In the case of credits not so used to re- duce tax liability, the carryforwards and carrybacks under section 39 shall be appro- priately adjusted. (B) No credits against tax Any increase in tax under this subsection shall not be treated as a tax imposed by this chapter for purposes of determining the amount of any credit under this chapter or for purposes of section 55. (C) No recapture by reason of casualty loss The increase in tax under this subsection shall not apply to a cessation of operation of the facility as a qualified child care facility by reason of a casualty loss to the extent such loss is restored by reconstruction or re- Page 277 TITLE 26—INTERNAL REVENUE CODE § 45G placement within a reasonable period estab- lished by the Secretary. (e) Special rules For purposes of this section— (1) Aggregation rules All persons which are treated as a single em- ployer under subsections (a) and (b) of section 52 shall be treated as a single taxpayer. (2) Pass-thru in the case of estates and trusts Under regulations prescribed by the Sec- retary, rules similar to the rules of subsection (d) of section 52 shall apply. (3) Allocation in the case of partnerships In the case of partnerships, the credit shall be allocated among partners under regulations prescribed by the Secretary. (f) No double benefit (1) Reduction in basis For purposes of this subtitle— (A) In general If a credit is determined under this section with respect to any property by reason of ex- penditures described in subsection (c)(1)(A), the basis of such property shall be reduced by the amount of the credit so determined. (B) Certain dispositions If, during any taxable year, there is a re- capture amount determined with respect to any property the basis of which was reduced under subparagraph (A), the basis of such property (immediately before the event re- sulting in such recapture) shall be increased by an amount equal to such recapture amount. For purposes of the preceding sen- tence, the term ‘‘recapture amount’’ means any increase in tax (or adjustment in carrybacks or carryovers) determined under subsection (d). (2) Other deductions and credits No deduction or credit shall be allowed under any other provision of this chapter with respect to the amount of the credit deter- mined under this section. (Added Pub. L. 107–16, title II, § 205(a), June 7, 2001, 115 Stat. 50; amended Pub. L. 107–147, title IV, § 411(d)(1), Mar. 9, 2002, 116 Stat. 46.) Editorial Notes AMENDMENTS 2002—Subsec. (d)(4)(B). Pub. L. 107–147 substituted ‘‘this chapter or for purposes of section 55’’ for ‘‘subpart A, B, or D of this part’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2002 AMENDMENT Amendment by Pub. L. 107–147 effective as if included in the provisions of the Economic Growth and Tax Re- lief Reconciliation Act of 2001, Pub. L. 107–16, to which such amendment relates, see section 411(x) of Pub. L. 107–147, set out as a note under section 25B of this title. EFFECTIVE DATE Section applicable to taxable years beginning after Dec. 31, 2001, see section 205(c) of Pub. L. 107–16, set out as an Effective Date of 2001 Amendment note under sec- tion 38 of this title. § 45G. Railroad track maintenance credit (a) General rule For purposes of section 38, the railroad track maintenance credit determined under this sec- tion for the taxable year is an amount equal to 40 percent (50 percent in the case of any taxable year beginning before January 1, 2023) of the qualified railroad track maintenance expendi- tures paid or incurred by an eligible taxpayer during the taxable year. (b) Limitation (1) In general The credit allowed under subsection (a) for any taxable year shall not exceed the product of— (A) $3,500, multiplied by (B) the sum of— (i) the number of miles of railroad track owned or leased by the eligible taxpayer as of the close of the taxable year, and (ii) the number of miles of railroad track assigned for purposes of this subsection to the eligible taxpayer by a Class II or Class III railroad which owns or leases such rail- road track as of the close of the taxable year. (2) Assignments With respect to any assignment of a mile of railroad track under paragraph (1)(B)(ii)— (A) such assignment may be made only once per taxable year of the Class II or Class III railroad and shall be treated as made as of the close of such taxable year, (B) such mile may not be taken into ac- count under this section by such railroad for such taxable year, and (C) such assignment shall be taken into ac- count for the taxable year of the assignee which includes the date that such assign- ment is treated as effective. (c) Eligible taxpayer For purposes of this section, the term ‘‘eligi- ble taxpayer’’ means— (1) any Class II or Class III railroad, and (2) any person who transports property using the rail facilities of a Class II or Class III rail- road or who furnishes railroad-related prop- erty or services to a Class II or Class III rail- road, but only with respect to miles of rail- road track assigned to such person by such Class II or Class III railroad for purposes of subsection (b). (d) Qualified railroad track maintenance expend- itures For purposes of this section, the term ‘‘quali- fied railroad track maintenance expenditures’’ means gross expenditures (whether or not other- wise chargeable to capital account) for main- taining railroad track (including roadbed, bridges, and related track structures) owned or leased as of January 1, 2015, by a Class II or Class III railroad (determined without regard to any consideration for such expenditures given by the Class II or Class III railroad which made the assignment of such track).