Work or Child Care: What Employers Can Do to Alleviate Burdens on Working Mothers


Facebook and Twitter have announced that they will allow their employees to work from home indefinitely, and other companies are considering adopting a similar policy. Remote work can benefit both employees and employers as employees no longer have to commute and employers can cut costs in rent.

However, remote work can also be a source of issues. For example, it can exacerbate what is already an unequal distribution of domestic work on women. Prior to the stay-at-home orders in response to COVID-19, women consistently spent more hours on housework and child care than men. In addition, when women have children, they are less likely to be hired for jobs and likely to be paid less than their male colleagues. This is referred to as the motherhood penalty and exists not because mothers become less productive but because employers expect to them to be.

The impact of COVID-19 on the distribution of domestic work isn’t clear, although one survey found that the distribution of housework and child care has not become more equitable as a result of stay-at-home orders. Additionally, McKinsey & Company released a report documenting the effects of COVID-19 on working women and found that one in four women are contemplating downshifting their careers or leaving the workforce entirely. Despite the rise in women representation in corporate America in the last decade, companies risk losing current women in leadership and women on track to be in leadership roles as a result of COVID-19. The report suggests, however, that this crisis represents an opportunity for companies to make investments that can alleviate the effects of COVID-19 and create more opportunities for women in the long term.

One of the investments that companies can make is to alleviate the costs and pressures of child care for their employees. This is especially helpful now as center-based child care providers are facing an average increase of 47% in operating costs as a result of the pandemic. In addition, some school districts started school virtually while others have fluctuated between in-person and online instruction throughout the pandemic, requiring parents to juggle both their jobs and remote learning for their children. 

Under the current tax code, an employer may help its employees with child care costs by offering a Dependent Care Flexible Spending Account (“FSA”). This FSA allows employees to use pre-tax dollars to pay for eligible child care expenses. Because these funds are deducted from an employees’ paycheck prior to tax deductions, employees are able to reduce their income tax and Social Security and Medicare taxes. While employees contributing pre-tax dollars is the most common way to fund the FSA, employers can directly contribute to the FSA without deducting any pay. However, employer’s and employee’s contributions cannot exceed the limit of $5,000 for individuals or married couples filing jointly. Unfortunately, by 2014, only 39% of civilian workers had access to a Dependent Care FSA. One way that employers can help alleviate the rising costs of child care is by offering access to Dependent Care FSAs and contributing directly to those FSAs.

Another way employers could help their employees is by offering child care themselves. Under § 45Fof the United States tax code, employers can receive a general business credit by providing child care for their employees. This provision has not been widely used though, as only 4% of employers offered subsidized child care for their employees and only an additional 4% offering non-subsidized care through their on-site facility. It is unclear why employers have not taken advantage of the provision. It may be that the demand for such services have been low; however, COVID-19 may significantly increase the desirability of subsidized child care. In fact, a survey conducted during COVID-19 found that 26% of employees would more likely stay at their current jobs if subsidized back-up child care was offered, and 13% would leave their current job if a different, comparably-paying job offered subsidized back-up child care, making it one of the most desired family-friendly benefits.

It is also possible that the demand for subsidized child care services have been low because the fair market value of the care provided to employees is considered taxable compensation for the employee. Benefits that are considered taxable compensation are not as attractive to the employees as benefits that are non-taxable. A common example of taxable compensation is a paycheck that an employee receives from his or her employer. The employee is then taxed on the paycheck. Likewise, because subsidized child care services are considered taxable compensation, the employee who takes advantages of such services will be taxed on the fair market value of the care as if he or she received a paycheck of that value.

Under § 132 of the tax code, “any property or services provided to an employee … to the extent that, if the employee paid for such property or services, such payment would be allowable as a [business expense] deduction” is not considered taxable compensation. In other words, if an employee can deduct the cost of a service as a business expense, then the employer can provide the service to the employee, and the service would be considered non-taxable. However, if the employee cannot deduct the cost, the service will be considered as a taxable compensation. Section 262 states that personal expenses cannot be deducted as a business expense. Thus, if any employer provides its employee with a service that would be considered a personal expense, then it is considered a taxable compensation.

The distinction between a business expense and a personal expense can be difficult to draw. The IRS defines business expense as the ordinary and necessary expense incurred in carrying on a businesswhereas IRS does not expressly define personal expense. Rather, it provides a non-exhaustive examples of personal expenses, which include rent, costs of commuting, and expenditures made to obtain education. Despite the ambiguity, the United States Board of Tax Appeals in Smith v. Commissioner explicitly held that child care costs are non-deductible personal expenses. Petitioners in Smith proposed that the court adopt the “but for” test in determining whether an expense was a business expense. The “but for” test would ask: but for child care expense incurred, would the taxpayer be able to carry on a business? If the answer is no, then the test would find that such expense is a business expense. The court, however, rejected the test because it would be too broad and include what had been traditionally considered personal expense as business. Although Smith was decided in 1939, the holding in Smith still remains to be good law as the court in Kuntz v. Commissioner in 2011 relied on it to find that caregiver expense was a personal expense.

Although the court in Smith rejected the “but for” test, it did not provide much guidance to taxpayers on how to distinguish between personal expense and business expense. As a result, scholars have analogized child care costs to other nondeductible personal expenses such as commuting costs where the “already at work” test applies. The “already at work” test delineates the boundary between business and personal expenses by characterizing expenses that incur once the taxpayer is already at work as business expenses. For example, commuting costs between a taxpayer’s home and work are generally considered nondeductible personal expenses. However, transportation costs incurred by a taxpayer between two specific business locations are considered business expenses because, once the taxpayer is “already at work,” expenses incurred after are considered business expenses.

The IRS should reconsider whether child care costs should be characterized as non-deductible personal expenses. First, as Grace Blumberg argues, the Smith court’s analogy between living costs, such as rent and child care expenses is flawed. While child care is an expense that would not have otherwise been incurred had the taxpayer not been employed, rent is an expense that would have been incurred regardless of the taxpayer’s employment. The court could have formulated a “but for” test that would have characterized child care expense as business expense without characterizing rent and other traditional personal expenses as business expense. In addition, the court’s reliance on traditional taxation norms may perpetuate traditional gender norms. The Smith court explicitly states that because “the wife’s services as … protector of its children are ordinarily rendered without monetary compensation[,] … the correlative expenditure is personal and not susceptible of deduction.” Although women are now the majority of the workforce, by prohibiting a taxpayer from deducting their child care expenses, the tax code could be deterring women from entering or staying in the workforce by increasing the costs of child care.

Even if the IRS continues to reject the “but for” test disaffirmed in Smith, the IRS should nonetheless characterize child care expenses as business expenses by applying the “already at work” test, typically used in the commuting context. As significant portions of the workforce are working from home, for many, COVID-19 has blurred the line between work and home. Employees feel as if they are constantly at work while children require meals, entertainment, supervision, and attention throughout the day. For many working parents, not only is child care more necessary in order to work than other traditional expenses such as paper and pens, but child care expenses can also incur once they are already at work because their homes have turned into a place of work as a result of COVID-19.

The long-term consequences of COVID-19 are unclear. Remote work may become more prevalent, giving employers and employee more flexibility. It may also come with a cost: working parents may have to choose between child care or work. To alleviate pressures on working parents, employers, with the assistance of the IRS, could help ensure that the benefits and the burdens of consequences of COVID-19 are distributed more equitably by tailoring their benefits to accommodate the rising costs of child care.

About the Author: Justin Park is a J.D candidate in the class of 2022 at Cornell Law School. He graduated from Washington and Lee University in 2019. He is interested in issues of litigation and tax law. He is an associate for the Cornell Journal of Law and Public Policy and a member of Asian Pacific American Law Students Association.

Suggested Citation: Justin Park, Work or Child Care: What Employers Can Do to Alleviate Burdens on Working Mothers, Cornell J.L. & Pub. Pol’y: The Issue Spotter (Jan. 15, 2020),

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