Louisiana offers a comprehensive package of tax credits, known as the School Readiness Tax Credits, designed to bolster the quality of child care across the state. Enacted in 2007 through Act 394, these credits, detailed in Revised Statutes 47:6101-6109, provide financial incentives to families, child care providers, directors, staff, and supporting businesses. The primary goal is to encourage voluntary participation in the Quality Start Child Care Rating System, administered by the Louisiana Department of Education (LDE). This system rates child care facilities, and you can even search for ratings on the Quality Start website. These School Readiness Tax Credits became effective for income tax years starting on or after January 1, 2008, and for franchise tax years from January 1, 2009. Further clarification on these credits is available in LAC 61:I.1903, jointly adopted by the Louisiana Department of Revenue (LDR) and the Louisiana Department of Children and Family Services (DCFS).
1. Child Care Expense Tax Credit
R.S. 47:6104 outlines the School Readiness Child Care Expense Tax Credit, aimed at taxpayers with qualified dependents under six years old. To qualify, the child must have attended a child care facility participating in the quality rating program and holding at least a two-star rating.
This tax credit is calculated as a percentage of the existing Louisiana child care expense credit (detailed in R.S. 47:297.4), and it’s in addition to that regular credit. The percentage is determined by the child care facility’s quality rating:
| Quality Rating of Child Care Facility | Percent of Louisiana Child Care Tax Credit |
|---|---|
| Five Star | 200% |
| Four Star | 150% |
| Three Star | 100% |
| Two Star | 50% |
| One Star or not participating in Quality Start | 0% |
Families with multiple eligible children can claim a credit for each child, calculated separately. If a child attends multiple facilities during the year, the credit is based on the facility with the highest quality rating.
- Refundable Credit: For taxpayers with a federal adjusted gross income of $25,000 or less, this credit is refundable. Louisiana residents claim this on Line 15 of Form IT-540, while nonresidents use Line 16 of Form IT-540B for the 2018 tax year (check current forms for updated lines).
- Nonrefundable Credit: Taxpayers with federal adjusted gross income exceeding $25,000 can use the credit to reduce their tax liability. If the credit surpasses the liability, the remaining amount can be carried forward for up to five years. For the 2018 tax year, this nonrefundable credit is claimed on Schedule J of Form IT-540 (or Form IT-540B for nonresidents).
Proof of Credit
To claim this credit, taxpayers must obtain Form R-10614, the Louisiana School Readiness Tax Credit, Child Care Expense Credit Certificate, from their child care facility. The facility must complete the top section, including their name, license number, Louisiana Revenue Account Number, quality rating, and rating award date. Child care providers are responsible for providing these completed forms to parents or guardians for each qualifying child.
The School Readiness Child Care Tax Credit is calculated as demonstrated in these examples:
Example 1
| Family’s federal adjusted gross income | $20,000 |
|---|---|
| Refundable or nonrefundable tax credit | Refundable |
| State child care credit amount | $50 |
| Qualified dependent under age six that attended a quality rated child care facility | 1 |
| Quality rating of the child care facility | 3* |
| Percentage of state child care credit allowed | 100% |
| School readiness child care expense tax credit ($50 x 100%) | $50 |
| The $50 school readiness child care expense credit can be claimed in addition to the $50 regular child care credit and, if the credit exceeds the taxpayer’s tax liability, the excess amount will be refunded. |
Example 2
| Family’s federal adjusted gross income | $30,000 |
|---|---|
| Refundable or nonrefundable tax credit | Nonrefundable |
| State child care credit amount | $50 |
| Qualified dependents under age six that attended a quality rated child care facility | 2 |
| Quality rating of the child care facility for first child | 4* |
| Percentage of state child care credit allowed for first child | 150% |
| School readiness child care expense tax credit for first child ($50 x 150%) | $75 |
| Quality rating of the child care facility for second child | 3* |
| Percentage of state child care credit allowed for second child | 100% |
| School readiness child care expense tax credit for second child ($50 x 100%) | $50 |
| Total school readiness child care expense tax credit ($75 + $50) | $125 |
| The $125 school readiness child care expense credit can be claimed in addition to the $50 regular child care credit and can be applied against the taxpayer’s liability with any excess credit carried forward for up to five years. |
2. Child Care Provider Tax Credit
R.S. 47:6105 establishes the refundable School Readiness Child Care Provider Tax Credit. This credit is available to child care providers who own and operate facilities caring for foster children in DCFS custody or children participating in the Child Care Assistance Program administered by the LDE.
The credit amount is calculated based on the average monthly number of eligible children attending the facility, multiplied by a credit amount that varies with the facility’s quality rating:
| Quality Rating of Child Care Facility | Tax Credit Per Eligible Child |
|---|---|
| Five Star | $1,500 |
| Four Star | $1,250 |
| Three Star | $1,000 |
| Two Star | $750 |
| One Star or not participating in Quality Start | 0 |
The LDE provides certification by March 1st to qualifying providers, detailing the average number of participating children. Providers must keep these certificates on record for LDR review upon request.
This credit can be applied against individual income tax, corporation income tax, or corporation franchise tax, depending on the facility’s entity type:
- Individual Income Tax Credit: For sole proprietorships or flow-through entities (LLCs, Partnerships, S corporations), the credit is claimed on Schedule F of Form IT-540 (Resident) or Form IT-540B (Nonresident). Partners and shareholders apportion the credit based on ownership percentage.
- Corporation Income or Franchise Tax Credits: Corporations claim this credit on Schedule RC of Form CIFT-620.
- Nonprofit Organizations: Nonprofit facilities also claim the credit on Schedule RC of Form CIFT-620. Even tax-exempt nonprofits must register with the LDR for corporation income tax to obtain a Louisiana revenue account number and claim this credit.
3. School Readiness Directors and Staff Tax Credit
R.S. 47:6106 offers a refundable tax credit for child care directors and eligible staff. To qualify, individuals must work at least six months in a licensed facility participating in the quality rating system and be enrolled in the Louisiana Pathways Child Care Career Development System.
This refundable credit is linked to educational levels attained through Louisiana Pathways and is adjusted annually based on the Consumer Price Index (CPI-U). The 2024 credit amounts are:
| School Readiness Tax Credit Levels | Amount of 2024 Refundable School Readiness Tax Credit for: |
|---|---|
| Director I | $2,130 |
| Director II | $2,839 |
| Director III | $3,550 |
| Director IV | $4,258 |
| Child Care Teacher I | $2,130 |
| Child Care Teacher II | $2,839 |
| Child Care Teacher III | $3,550 |
| Child Care Teacher IV | $4,258 |
Directors and staff claim this credit on Schedule F of Form IT-540 or Form IT-540B.
The LDE certifies the educational level of directors and staff by January 31st. Providers complete Form R-10615, Louisiana School Readiness Tax Credit, for Child Care Director and Staff, and provide it to eligible individuals. LDE also provides certification information to LDR for verification. Directors and staff must enter the facility license number from Form R-10615 on Line 5A of Schedule F and attach a copy of Form R-10615 to their tax return to avoid processing delays.
4. Tax Credit For Business-Supported Child Care
R.S. 47:6107 provides a refundable tax credit to businesses supporting quality child care. Eligible support includes:
- Expenses for construction, renovation, expansion, or repair of a child care center; equipment purchases; and center operation/maintenance (capped at $50,000 per tax year).
- Payments to eligible child care facilities for employee child care services (capped at $5,000 per child per tax year).
- Purchase of child care slots at eligible facilities for employees’ children (capped at $50,000 per tax year).
The credit is a percentage of eligible expenses, based on the quality rating of the supported child care facility:
| Quality Rating of Child Care Facility | Percentage of Eligible Expenses |
|---|---|
| Five Star | 20% |
| Four Star | 15% |
| Three Star | 10% |
| Two Star | 5% |
| One Star or not participating in Quality Start | 0% |
This refundable credit can be claimed against individual income tax, corporation income tax, or corporation franchise tax, depending on the business’s entity type:
- Individual Income Tax Credit: For sole proprietorships or flow-through entities, claim on Schedule F of Form IT-540 or Form IT-540B, with partners/shareholders apportioning the credit.
- Corporation Income or Franchise Tax Credits: Corporations claim on Schedule RC of Form CIFT-620.
- Nonprofit Organizations: Nonprofits also claim on Schedule RC of Form CIFT-620. Tax-exempt nonprofits need to register with LDR for corporation income tax to obtain a Louisiana revenue account number for claiming this credit.
5. Tax Credit For Donations To Resource And Referral Agencies
R.S. 47:6107 also allows businesses a tax credit for donations to Child Care Resource and Referral Agencies. These agencies, contracted with the Department of Education, provide services and information to parents and providers. The credit equals the donation amount, up to $5,000 annually.
Taxpayers must attach a receipt from the agency and, if applicable, Schedule K-1 from the donating entity.
This refundable credit can be taken against individual income tax, corporation income tax, or corporation franchise tax based on the business’s entity type:
- Individual Income Tax Credit: For sole proprietorships or flow-through entities, claim on Schedule F of Form IT-540 or Form IT-540B, with partners/shareholders apportioning credit.
- Corporation Income or Franchise Tax Credits: Corporations claim on Schedule RC of Form CIFT-620.
- Nonprofit Organizations: Nonprofits also claim on Schedule RC of Form CIFT-620. Tax-exempt nonprofits must register with LDR for corporation income tax and get a Louisiana revenue account number to claim this credit.
