Solving South Carolina’s $977 Million Problem
There are very few policy issues that drastically affect families, employers, and the state economy all at the same time, but child care certainly fits in this category. South Carolina parents are struggling to find affordable child care, making it increasingly difficult to balance holding down a job and raising a family. Many parents face termination or reduced hours, as frequent child care-related absences— defined as time off required to provide necessary care or attention to a child when normal care arrangements are unavailable or insufficient—make it very difficult for them to maintain stable employment.
In fact, a report released in August 2025 by the South Carolina Chamber of Commerce, South Carolina Department of Social Services, and the U.S. Chamber of Commerce Foundation estimates that employers in South Carolina lose $501 million each year due to parents missing work for child care issues. But that’s only the tip of the iceberg when it comes to the economic implications of our state’s care shortage. The cost to replace employees who quit or are fired for child care reasons add another$318 million to this annual loss for employers. Additionally, with a decrease in household incomes from parents staying out of the workforce, there is a $179 million loss in revenue for the South Carolina government from sales and excise taxes. This brings the state of South Carolina to a grand total of $977 million in annual losses, all because of our child care shortage. At Palmetto Promise, we believe in strong families and developing a workforce culture that supports stable, two-parent households. But South Carolina’s child care crisis is no longer just a family policy issue; it is an economic emergency.
South Carolina already has measures in place to combat this drain on our economy. There exists a child care tax credit under section 12-6-3440 of the South Carolina Code of Laws. This credit incentivizes employers to either establish an on-site child care facility or cover part of the cost of sending employees’ children to a licensed, independent child care facility. If a company participates in operating and building a child care facility, then they receive a tax credit equal to 50% of the costs, which cannot be more than$100,000. If a company pays to send children to an off-site facility, then this tax credit can cover 50% of those costs, capped at $3,000 per year per child. These credits can be applied to a company’s state income tax, bank tax, or premium tax liability. However, during the 2023 tax year, only 18 companies took advantage of this credit, saving them $50,951 in total.
The Low Participation Rate Explained
So what is the problem here? Why are so few South Carolina businesses taking advantage of this existing tax credit?
It all comes down to the ever-increasing cost of child care. Establishing a child care facility far exceeds the $100,000 tax credit cap, and starting such a facility can be a long and arduous process to receive building approval, acquire a license, pass inspections, hire staff, and more. Alternatively, if a company opts to pay a child care provider directly on behalf of its employees, the math just doesn’t make sense, due to the cap limiting reimbursed employer contributions to $3,000 per child per (or half of the child care cost, whichever is lower). The law states that the credit is intended to cover half of a parent’s child care cost, but $3,000 is far below half of the actual cost of child care. In 2023, the average annual cost of child care in South Carolina was $9,048 for infants and $8,727 for toddlers, none of which is considered to be “affordable.”
In 2016, the US Department of Health and Human Services defined child care as “affordable” if a family spent no more than 7%of their income on care. Let’s take a look at how that lines up in South Carolina. In 2021, the median household income for South Carolina was $59,447. Even if a family earning this amount paid only $6,000 per year for care, that cost would still represent 10% of their income,3% above the benchmark for what is considered “affordable.” Though the current tax credit does help to decrease the cost of child care, because it only covers a maximum of $3,000, businesses and employees still have to pay roughly 67% of the costs per year, assuming the cost for child care is around $9,000. This falls 17% short of the 50% coverage envisioned in this law.
S.47 (a bipartisan bill sponsored by Senator Tom Davis, R-Beaufort) aims to close this gap by raising the maximum tax credit a company can claim for building a child care facility and covering the cost per child.
S.47 Fixes the Shortfalls of Existing Law
If enacted, S.47 would:
- Increase the maximum tax credit for employers to build a child care facility from $100,000 to$1,000,000. However, this tax credit still only covers 50% of the costs to create a facility with $1,000,000 being the maximum amount of money that the State would pay an employer.
- Raise the cap on employer contributions for child care through an external provider from $3,000 to $12,000 per child. This tax credit still only covers 50% of the costs to create a facility with $12,000 being the maximum amount per child per year that can be claimed.
- Diversify the types of taxes to which the credit could be applied. In addition to being able to use this tax credit towards their income tax, bank tax, or premium tax, employers could also claim the tax credit on their a license tax or withholding tax liability.
Each of these aspects encourages more employers to decrease the burden of expensive on or off-site facility costs. The remaining question is whether this would still be an affordable cost for employees, even with the credit. While affordability is harder to gauge for employer-run facilities, off-site centers would meet the definition of “affordable.”
Let’s run the numbers.
- Recall, the federal benchmark for affordable child care is 7% of one’s household income.
- The average income in South Carolina for 2021 was $59,447.
- The average cost of child care in South Carolina in 2023 was $9,048for infantsand$8,727 for toddlers.
- This tax credit covers 50% of the cost of child care, which is roughly $4,500.
- $4,500 is 7% of $59,447, so it would be considered an “affordable” price for South Carolinians.
How Does South Carolina Compare to Other States?
South Carolina offers one of the smallest employer child care incentives in the Southeast region. The table below outlines child care tax credit statutes, as of January 2025, based on analysis from The Conference Board.
State |
Legislation |
| Available for services for employees with $80,000 or less income. The tax credit is equal to total eligible expenses by the employer, up to $600,000 per year for each employer. The employer credit is capped at $15M in 2025, $17.5M in 2026, and $20M in 2027. | |
| An employer is allowed a tax credit for 50% of startup expenses for an onsite child care program. The maximum credit is $1 million for employers with 1-19 employees, $500,000 for employers with 20-250 employees, and $250,000 for employers with more than 250 employees. Employers are also eligible for a tax credit of $300 per month for each eligible child enrolled. The maximum credit per year is based on the average number of employees. For employers with 1-19 employees, $50,000. For 20-250 employees, $500,000, for more than 250 employees, the maximum credit for employers is $1 million. An employer can also receive a tax credit for payments on behalf of employees to a qualified child care program in the community. Employers are eligible for a tax credit for 100% of such payments up to $3,600 per child per year. The maximum credit for employers with 1-19 employees is $50,000, for 20-250 employees is $500,000, and for more than 250 employees, the maximum is $1 million. Appropriated for this tax credit initiative is $5 million annually. The credit expires on July 1, 2027. | |
| Employer’s Credit for Purchasing Child Care Property. Employers who purchase qualified child care property will receive a credit totaling 100% of the cost of such property. The credit is claimed at the rate of 10% a year for 10 years. Any unused credit may be carried forward for three years and the credit is limited to 50% of the employer’s Georgia income tax liability for the tax year. | |
| A 50% income tax credit is granted to any employer providing dependent care for employees during the employee’s work hours. Credit is applied to the net cost of any contract executed by the employer for another entity to provide dependent care; or, if the employer elects to provide dependent care itself, to expenses of dependent care staff, learning and recreational materials and equipment, and the construction and maintenance of a facility. Additional eligible expenses include net costs assumed by the employer which increase the quality, availability and affordability of dependent care in the community used by employees during the employee’s work hours. | |
|
North Carolina |
N/A |
|
Tennessee |
N/A |
| In an amount equal to twenty-five percent of all expenditures paid or incurred by such taxpayer in such taxable year for planning, site preparation, construction, renovation, or acquisition of facilities for the purpose of establishing a child day-care facility to be used primarily by the children of such taxpayer’s employees, and equipment installed for permanent use within or immediately adjacent to such facility, including kitchen appliances, to the extent that such equipment or appliances are necessary in the use of such facility for purposes of child day-care; however, the amount of credit allowed to any taxpayer under this section shall not exceed $25,000. |
Other Aspects of S.47
In addition to the affordability problem with child care, parents also face barriers to accessibility of care. There are simply not enough facilities or child care workers to meet demand. 42% of South Carolina’s population resides in areas classified as child care deserts.
Low pay makes child care workers very difficult to recruit; on average, these staffers make $15 per hour and $30,836 annually (in comparison to South Carolina’s median income of $59,447. With rapidly growing inflation, it is difficult to make ends meet as a child care worker. S.47 attempts to decrease this financial burden and encourage more adults to become child care workers professionally. The bill would allow a refundable income tax credit to full-time child care director or child care staff persons at a DSS licensed and registered facility, indexed for their position in the facility (see table below, which relates to the different educational stages defined by SCEndeavors).
Child Care Director and Child Care Staff Qualification |
Tax Credit |
|
Level Four Director or Level Four Staff |
$3,000 |
|
Level Three Director or Level Three Staff |
$2,500 |
| Level Two Director or Level Two Staff |
$2,000 |
| Level One Director or Level One Staff |
$1,500 |
Conclusion
South Carolina’s child care crisis has consequences, impacting families, employers, and the state economy. South Carolina should not lose $977 million annually due to fixable issues. Current policies provide limited relief, with low participation and insufficient funding that leaves families paying far more than the federal benchmark for affordable care. A bill like S.47 would be a step in the right direction to improve South Carolina’s economy and increase the number of child care workers. Additionally, if enacted, this type of bill would ensure that employers can retain their employees. Currently, South Carolina ranks 49th in the nation for labor force participation, and this is in part due to parents not being able to find and afford safe, reliable care for their children, allowing moms and dads to enter the workforce. S.47 offers a tangible, light-touch solution to one of the state’s most urgent workforce and economic challenges, paving the way for long-term stability and growth.
