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July 24, 2023 Focus: Workplace

Expanded human capital tax credit aims to help employers boost worker perks, including child-care reimbursements, job training

HBJ PHOTO | STEVE LASCHEVER Lionel Andújar (right), vice president of engineering at Manchester manufacturer Enjet Aero (formerly Spartan Aerospace), trains a young apprentice. Connecticut has boosted tax incentives for companies that invest in workforce training programs.

A new law that increases tax credits for employee training and child care is being touted as an effective way to incentivize businesses to invest in their workforce and potentially chip away at the state’s worker shortage.

The recently passed two-year, $51.1 billion state budget increases Connecticut’s human capital investment tax credit from 5% to 10% for workforce training-related investments, and up to 25% for child care-related expenditures.

It allows companies doing business as corporations to get a larger credit for costs related to in-state job training, work education and training programs, and donations or capital contributions to higher education institutions for improvements or technology advancements — including physical plant upgrades.

Also, child care-related expenses are eligible for a 25% credit after Jan. 1, 2024, including costs for building, renovating or acquiring child-care facilities, as well as subsidies to employees for child care.

Brenden Healy

Brenden Healy, partner head of tax services at Hartford-based accounting and consulting firm Whittlesey, said companies can use the credit to reduce their Connecticut corporation business tax liability, providing a perk to invest in workforce training programs.

The state assesses a 7 ½% tax on corporations’ Connecticut net income.

“If a company spends $100,000 on training, they can take the $1,000 in tax credit,” he said. “So, they are not spending the money just to get the credit. But, for a company that’s maybe a little on the fence, it’s an incentive to push them over.”

Investing in training and child care benefits individual companies, the state and employees, he said.

“It’s going to help make Connecticut more attractive to companies to stay here or to relocate here because it creates a well-trained workforce,” Healy said.

Ashley Zane

Ashley Zane, a lobbyist for the Connecticut Business & Industry Association, said companies, particularly manufacturers, risk losing productivity during training.

“When companies send employees to get reskilled on a new piece of equipment or coding, for example, the manufacturer is losing a lot of productivity,” Zane said. “So, this is really going to help offset some of those costs and also offset the actual cost of sending employees to these training programs.”

The tax credit is expected to cost the state $16.1 million in tax revenue over the next five fiscal years, according to the Office of Fiscal Analysis.

Child-care considerations

The law will also help workers better afford child care, which is seen as one of the top roadblocks for the state in filling vacant jobs, Zane said.

Of the 104,000 job openings in Connecticut, nearly 10% of applicants are not pursuing employment because of child-care considerations, equaling about 10,400 people who are out of the workforce, according to the CBIA.

According to a Governor’s Workforce Council report, options to access affordable, high-quality early child care remain limited.

Nearly 44% of Connecticut residents live in a “child-care desert,” which is defined as any census tract with more than 50 children under age 5 that contains either no child-care providers, or so few options that there are more than three times as many children as licensed child-care slots.

That number increases to 58% in lower-income neighborhoods, according to the report, and the estimated unmet need for infant and toddler care exceeds 50,000 spaces.

Zane said studies show that nearly one in 10 parents of young children either quit a job, did not take a job offer, or changed jobs because of child-care considerations.

A shortage of providers and staff driven by low wages, low reimbursement rates, and a lack of support for child-care providers contributes to the supply gap.

Several large companies in the state offer on-site child care, such as Boehringer Ingelheim, ESPN, Yale University and Yale New Haven Hospital.

One of the law’s strong points is its flexibility, Zane said, from offering credits for a company to build a child-care center, to helping finance a private child-care center build out, or providing child-care vouchers for families.

If a company invests $1 million toward building a new child-care center, it would get $250,000 in credit.

“So, they are paying 25% less in taxes, reducing that tax liability at the end of the year,” Zane said.

This part of the bill is aimed at larger companies, Zane said, since many smaller to mid-sized businesses don’t offer on-site child care, or can’t make the level of investment in order to get a large credit.

However, smaller companies doing business as corporations can take advantage of the vouchers.

If a day care costs $600 per week per child, an employer might give a $100 subsidy to a worker, then the company gets $25 back in the tax credit under the law, Zane said.

“One of the biggest things we hear from businesses is they can’t recruit and retain workers because child care is the number one issue that they’re having. This is going to allow companies that are in child-care deserts to start investing in child-care programs,” Zane said.

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