What You Need to Know About the Child Care Stabilization Grants
States have now started to release grants to family child care providers under the new Child Care Stabilization grant program. If your state hasn’t already opened grant applications, they will do so over the coming months.
All family child care providers should take advantage of these grants. This is a grant, not a loan. You don’t have to pay it back. It can help you recover from losses you may have suffered as a result of COVID-19.
On June 26th I hosted a webinar “Help is on the Way! What the Child Care Stabilization Grants Mean to You.” In this webinar, I discussed how to apply for the grants, what they can be used for and what the tax implications are for these grants.
Here’s a link to the recording of this webinar.
Note: This recording is not yet 508 compliant and so is not final. This means it hasn't yet been made accessible to persons with disabilities. A Spanish translation of the webinar will be available later.
Here’s a map showing which states are currently accepting applications.
Here's a link to see if your state has posted information about these grants.
Look for the heading “Child Care Stabilization Grant Information” under your state. Note: Some states will describe other grant programs under this heading.
Here are the questions and answers from the June 26th webinar.
A general comment about my answers to the questions below. There is federal guidance that has interpreted the law. This guidance identifies who is eligible for this grant money, what expenses the money can be used for, and much more. States, however, have broad leeway in how they administer this grant program. Therefore, my answers below may not always be applicable to your state. Look closely at your state’s grant application.
What is the Child Care Stabilization Grant?
Q: Is the Stabilization Grant a new grant?
A: Yes, the Stabilization Grant is made possible under the American Rescue Plan (ARP) Act signed into law by President Biden on March 11, 2021.
Q: Is there more than one grant?
A: Yes. During the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was enacted on March 27, 2020 and the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (CRRSA Act) was enacted on December 29, 2020. States received this funding to continue payments and assist child care providers during the public health emergency. The Child Care Stabilization Grant is in addition to these grant programs. Congress set aside nearly $24 billion dollars for the Child Care Stabilization Grant program. States must use at least 90% of this money for grants to child care homes and centers. See this chart for details about all three grant programs.
Should I Apply for a Stabilization Grant?
Q: Is the Stabilization Grant a grant or a loan? Does it have to be paid back?
A: It’s a grant that you don’t have to pay back!
Q: Is the Stabilization Grant taxable?
A: Yes, it’s taxable income for your business on your federal tax return. It may or may not be taxable on your state income tax return. But, see the webinar recording to understand why you will almost always be financially better off after receiving a grant, even if you have to pay more in taxes.
Q: Will I pay taxes twice; once when I pay myself and once when I pay taxes on my business?
A: No. It’s only taxable once.
Q: Will the Stabilization Grant income affect my eligibility for health insurance through the Affordable Care Act? Will the grant affect eligibility for the State Children’s Health Insurance Program?
A: Maybe. It’s possible that receiving a Stabilization Grant will increase your income and make you ineligible for these health insurance programs. If you use all the grant money to purchase items for your business, it’s unlikely it will affect your eligibility. Contact these programs to see how much additional income you can receive before it will affect your eligibility.
Q: Will the Stabilization Grant income cause me to exceed the allowable income I can earn and still receive full Social Security benefits?
A: If you are under your full retirement age (age 66 or 67 depending on when you were born) and claim Social Security benefits while working, you can earn up to $18,960 in 2021 without it reducing your Social Security benefits. If you receive a Stabilization Grant that will cause you to earn more than $18,960, your Social Security benefit will be slightly reduced. Once you exceed your full retirement age, you will recapture any lost benefits.
How Do I Apply?
Q: Who is in charge of the Stabilization Grant in my state?
A: Each state, territory and tribe has a designated “lead agency” that administers the funds. Visit the “Childcare.gov, Providers: State and Territory COVID-19 Resources” webpage and find the “Child Care Stabilization Grant” link for your state or territory. If there is nothing posted under this heading, it means your state has not yet begun the application process.
Q: How much can I apply for?
A: Each state, territory and tribe will make decisions about the grant amounts based on the amount of funding received.
Q: When will the application be distributed?
A: States, territories, and tribes have until 2023 to spend the Stabilization Grant funding; however, it is anticipated that they will release the applications before then!
Q: Where will the application be posted?
A: The state and territory lead agencies that administer the funds will post the application on their websites. Visit the “Childcare.gov, Providers: State and Territory COVID-19 Resources” webpage and find the “Child Care Stabilization Grant” link for your state or territory. If there is no mention for your state now, it means your state has not yet begun the application process. It may take a number of months before applications will be available for your state.
Q: Will the application be available in Spanish?
A: State and territory lead agencies that administer the funds are encouraged to make the applications available in multiple languages.
Q: Who can I call if I need help filling out the grant?
A: Your state, territory, or tribe may provide technical assistance. The Child Care Resource and Referral (CCR&R) agency in your community may also be able to help.
Q: Will my family child care program be competing with larger agencies for the Stabilization Grants?
A: Each state, territory and tribe has received a specific amount of money for the Stabilization Grant. Based on the amount received, they are determining an equitable method for making the Stabilization Grants available to both homes and centers.
Q: Will the Stabilization Grants be first come, first served?
A: This will be up to each state, territory and tribe.
Eligibility for the Stabilization Grant
Q: Does each state, territory and tribe have flexibility as to how these grants are awarded?
A: Yes. There is federal guidance that identifies broad eligibility criteria, but each state does have broad flexibility as to who is eligible and how the grant money will be awarded.
Q: Does my family child care home have to be licensed to receive the Stabilization Grant?
A: The federal guidance says the providers must be “licensed, regulated, or registered under applicable state and local law.” This includes “license-exempt” child care legally operating under state law. Note: states can restrict who is eligible to receive these grants.
Q: My family child care home just received a license, am I eligible to receive the grant?
A: Providers must be licensed, regulated or registered no later than March 11, 2021.
Q: Will I qualify for the Stabilization Grant if my family child care home was closed for a period of time during the pandemic?
A: Federal guidance allows providers to receive these grants who were temporarily closed due to “public health, financial hardship, or other reasons relating to the COVID-19 public health emergency.”
Q: I temporarily closed my business because a family member was high risk. I kept up with my license and training. Am I eligible for the Stabilization Grant?
A: You should be. See my answer to the previous question.
Q: The ownership of my business changed but my license did not change. Am I eligible?
A: I don’t know for sure. Ask your state child care agency.
Q: Am I eligible for the Stabilization Grant if I closed my business permanently due to the pandemic?
A: The language in the guidance refers to providers who close “temporarily” so it could be that you are not eligible. Check with your state child care agency.
Q: Is the Stabilization Grant only for family child care providers who care for children who receive subsidies?
A: No. All licensed or regulated family child care providers are eligible under the federal guidance. States may choose to prioritize providers who care for subsidized children.
Q: Do I have to show a loss of money during the pandemic to qualify for the Stabilization Grant?
A: No.
Q: Can I apply for the Stabilization Grant if I have not filed taxes for 2019 or 2020?
A: You should be able to. Some states may ask for tax information as part of the application process, but that shouldn’t prevent you from getting grant money.
Q: Is my family child care business eligible if it is a Limited Liability Company (LLC)?
A: Yes, it doesn’t matter what business structure you operate under to be eligible for these grants.
Q: Are non-profit companies eligible?
A: Yes.
Q: Are faith-based or church-affiliated programs or child care centers eligible?
A: Yes. This grant program is for both child care centers, school-age child care and faith-based programs.
Q: Are Head Start programs eligible?
A: No. Head Start programs have separate funding resources.
Q: If my program if is church-affiliated, how do I handle tax form questions?
A: If your program is non-profit, you will not pay federal income taxes on these grants.
Q: Will I be disqualified if I have an active Chapter 13 bankruptcy and continue to make payments to the trustee?
A: There is nothing in the federal guidance that says that providers in bankruptcy are ineligible to receive these grants. Your state may set its own rules about this.
Use of the Stabilization Grant Funds- General
The federal guidance gives broad categories for allowable expenses. These expenses include:
Personnel costs
Rent, utilities, facilities, maintenance and insurance
Personal protective equipment, cleaning and other health and safety practices
Equipment and supplies
Goods and services
Mental health services
When the application form is released in your state, make sure that you understand what expenses are allowable with the grant. Federal ARPA Guidance describes what constitutes these expenses in more detail.
Note on “personnel costs”
Your state’s grant application may use language such as “personnel costs” or “salary” or “wages” or other similar language. This can be confusing if you are a sole proprietor (self-employed). The intent of this program is to allow family child care providers to use some of the grant money to pay themselves. In the normal operation of your business, you don’t “pay yourself” a salary or a wage. Any money you receive is automatically yours if you are self-employed. Therefore, you should be able to use grant money on yourself, regardless of the language in your grant application. Your state may give you directions on how to account for this through the writing of a check to yourself or transferring money from one bank account to another. Or, you may only have to say you spent it on yourself without showing any records. Each state can handle this differently.
Also, it’s important to realize that once you pay yourself with some of the grant money, you can then spend the money on whatever you want. That means you could spend it on items for your business that are not allowed under the grant rules, such as a new roof or major remodeling or construction. Or you could use it for personal purposes, such as saving for retirement or taking a vacation.
Q: Can the Stabilization Grant be used to pay last year’s expenses?
A: Federal guidance allows providers to claim expenses after January 31, 2020, that were incurred in response to the COVID-19 public health emergency, including child care operating expenses. States may or may not follow this guidance. For example, Kansas only allows expenses back to March 1, 2020.
Q: Can the Stabilization Grant be used to pay the mortgage? To pay ahead on the mortgage?
A: Maybe. The federal guidance says money can be used for “mortgage obligation” so perhaps your state would allow you to deduct monthly mortgage payments. However, for tax purposes, you can only deduct the business portion of mortgage interest and house depreciation. It’s up to the state to clarify what expenses they will allow.
Q: Can the Stabilization Grant be used to pay property taxes?
A: No.
Q: Can the funds be used to pay utility costs?
A: Yes.
Q: Can the Stabilization Grant be used to contribute to an Individual Retirement Account (IRA), KEOGH Plan, or other retirement plan?
A: No. However, if you use some of the grant money to pay yourself, you can then use this money to make retirement contributions.
Q: Can the Stabilization Grant be placed in a business savings account for emergencies?
A: No. But see my answer to the previous question.
Q: Can the Stabilization Grant be used to pay independent service providers: house cleaners, lawn service, inspections, etc.?
A: Yes. But, your state can be more restrictive in what they will allow.
Q: Can the Stabilization Grant be used to pay college tuition for Early Childhood Education coursework or expenses for Child Development Associate (CDA)?
A: No. However, if you use some of the grant money to pay yourself, you can then use this money to pay college tuition.
Q: Can the Stabilization Grant be used for hazard pay or staff bonuses? How do staff bonuses work?
A: Yes, you can use the money for hazard pay or staff bonuses. To pay your staff a bonus, simply give them some extra money. They must report it as taxable income and you must withhold the proper federal and state payroll taxes.
Q: Can the Stabilization Grant be used to reimburse for paid medical expenses?
A: Yes, for medical expenses paid to employees, no for your own medical expenses.
Q: May I use the Stabilization Grant funds to set up if I move my family child care home from one location to a new location?
A: It depends on what you mean by “set up.” You can use the money for expenses identified above.
Q: Is purchasing t-shirts for the children to wear on field trips an appropriate use of the funds? Purchasing scrubs for educator to wear in the classroom?
A: Maybe. You might be able to call them “equipment and supplies.”
Q: Can the funds be used to purchase adult seating?
A: Probably, if it's considered "equipment."
Q: Can the Stabilization Grant be used to purchase outdoor equipment and child-related toys?
A: Yes.
Q: If I rent my home, can I use the Stabilization Grant to make minor repairs?
A: Yes. This could include:
A cement pad for the children to play on
Replacing a water heater
Replacing classroom lighting
Replacing kitchen appliances
Repairing fencing
Note: The federal guidance says the grant money cannot be used for “construction or major renovations.” It does allow for “facility maintenance or improvements.” This language is subject to interpretation by your state. Your state may or may not allow for adding a bathroom, replacing a furnace, replacing a roof, adding a new deck or alarm system, or adding a new fence around a pool. If your grant application is not clear on this point, contact the agency administering the grant for clarification.
Tom Copeland – www.tomcopelandblog.com
Image credit: https://californiahealthline.org/news/everything-you-need-to-know-about-block-grants-the-heart-of-gops-medicaid-plans/
This document was funded by the Child Care Communications Management Center, which is funded by the Office of Child Care (OCC), Administration for Children and Families (ACF), U.S. Department of Health and Human Services (HHS), and was developed in partnership with the National Center on Early Childhood Quality Assurance, which is funded by OCC, the Office of Head Start, ACF, HHS. This resource may be duplicated for noncommercial uses without permission.
