Giving Thought: Child tax credit a gift that keeps on giving

Discussion of the child-care crisis in our region is not new, and possible solutions could fill several editions of this paper. And, while many of the proposed solutions have incredible potential and should continue to be explored, Colorado offers its taxpayers the opportunity to participate directly in the solution now with its Colorado Child Care Contribution Tax Credit.

Colorado taxpayers who make a qualified monetary contribution to promote and support child care in Colorado can claim an income tax credit of up to $100,000 per year for 50% of the total contribution. Established in 1998, it is available to taxpayers who contribute to child care, foster care, youth shelters, residential-treatment centers, before and after-school programming, and grant programs to help families afford child care outside of school hours.

The tax credit underscores Colorado’s commitment to supporting child care and youth-serving programs and its critical importance for the state’s economic vitality. Data suggests that for every dollar spent in the Colorado early care and education sector, $2.25 is contributed to the state’s economy. An additional $720 million is generated in the Colorado economy through indirect or induced output from the Colorado early care and educational sector.

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“We saw during the pandemic that caregivers are essential to our economy. Programs like this have helped to elevate the profession by shifting how the field is seen, which has helped change the lives of those working in it and the children we serve,” said Adele Melnick, director of Growing Years School in Basalt.

Child-care tuition does not cover the cost of running  most child-care facilities. Several years ago, Kids First completed a study, estimating the daily cost of child care was around $140, despite most programs charging $60-$80. Programs like Growing Years School rely on philanthropic contributions to not just balance their budget, but to also offer high-quality services and support their staff.

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“Donor support allows us to offer extras — like cost-of-living adjustments for our staff — and invest in high quality equipment and furnishings. Also, this type of support enables us to offer tuition assistance to families in need,” Melnick said.

For some philanthropists, the tax credit is a motivator for increasing donations to organizations they would already support.

Aspen Youth Center offers free year-round programming for youth in grades 4 to 12 and was approached by a donor about the tax credit. “They said, ‘If you can get qualified for this, I will make a big donation.’ We, of course, made it happen, and they came through on that promise,” said Michaela Idhammar-Ketpura, executive director of the Youth Center.

Others are surprised to learn how simple the program is, said Idhammar-Ketpura. “Whenever we explain it, people are really surprised at how it works, and it really sounds too good to be true. The program is amazing, and it is for people who work directly with youth on a daily basis, in person. All donations from $100-$100,000 annually qualify as long as the donors are taxpayers in the state of Colorado. Also, this is a tax credit, not a deduction. So, families who claim standard deductions or itemized can both still benefit from the tax credit. Of course, talking to a financial expert is best, but it is really very simple.”

Donor support allows programs like the Aspen Youth Center to continue running and creates the opportunity for expanded reach and impact.

“Right now, AYC is focusing on our programs and keeping them free but also expanding them to fit a wider audience, including differently-abled youth. We are working on staffing for these kids as well as funding,” Idhammar-Ketpura said.

In addition to directly supporting child-care providers and other qualifying youth-serving organizations, donors can also contribute to funds that make grants to qualifying organizations or grant or loan programs that support paying for child care.

Aspen Community Foundation established the Early Childhood Fund in 2008 to support parent education, preschool, and literacy programs that promote social-emotional development and school readiness. Gifts to this fund qualify for the tax credit and are distributed annually to youth-serving nonprofits throughout the Aspen to Parachute region through the foundation’s Community Grant Program.

To report the child tax credit on a Colorado income tax return and receive credit, a Child Care Contribution Tax Credit Certification (form DR 1317) must be completed by the qualified organization that receives the donation and provided to the donor/taxpayer. This form is then attached to the taxpayer’s Colorado Income Tax Return.

While it might sound too good to be true, this innovative program is genuinely improving the lives of children, bolstering the state’s economy, elevating the role of child-care providers, and potentially decreasing tax bills. This giving season, consider a gift to the community that gives something back.

Allison Alexander is the director of strategic partnerships and communications for the Aspen Community Foundation, which, with the support of its donors, works with nonprofits in the Roaring Fork and Colorado River valleys.