BridgeWorks
Ask employers why they can't fill entry-level roles and child care comes up quickly. A worker who can't find care can't take the early shift, the weekend shift, or sometimes any shift at all. Research out of Louisiana this month found that one in three parents there had cut their work hours for lack of child care, and 17 percent had quit a job.
There is a federal tool aimed squarely at that problem, and as of this year it is much bigger. The employer-provided child care credit, known by its tax code section, 45F, was expanded by last year's tax law. The new rules apply to costs paid or incurred after December 31, 2025, so 2026 is the first year employers can use them.
What changed
Under the old rules, the credit was 25 percent of qualifying child care costs, capped at $150,000 a year. Historically, relatively few businesses have claimed it.
For 2026 and later, according to the IRS:
- Most employers: a credit of 40 percent of qualified child care expenses, up to $500,000 a year
- Eligible small businesses: 50 percent, up to $600,000 a year. For 2026, that generally means average annual gross receipts of $32 million or less over the previous five years.
- Resource and referral services: a separate 10 percent credit for paying a service that helps employees find care
- Both caps will be adjusted for inflation after 2026
What counts
The credit isn't only for companies big enough to build an on-site center. Qualified expenses include:
- Building, expanding or renovating a licensed child care facility used by employees
- Operating costs for such a facility, including training for its staff and higher pay for staff with more child care training
- Contracting with a licensed provider to reserve care for employees
- Contracting with an intermediary, such as a child care resource and referral agency, that arranges care with licensed providers. The expanded rules spell this out explicitly, which can open the credit to employers too small to run or contract with a center on their own.
- Joint arrangements, where several employers share a facility, which the new rules explicitly allow
The fine print
- The care has to be licensed and meet state and local requirements.
- It can't favor highly paid employees. Eligibility has to be open broadly, not limited to executives.
- Recapture applies. If a facility stops operating as qualified child care, or ownership changes, within ten years of opening, some of the credit can be taken back.
- No double-dipping. Expenses that generate the credit can't also be deducted or used for another credit.
- It's claimed on IRS Form 8882. Talk to a tax advisor before committing, especially if you are considering a facility project.
Why it matters for hiring
For the employers we work with, this is a retention tool as much as a tax break. Child care problems are a common reason hourly workers miss shifts or leave, particularly when schedules don't line up with daycare hours. Help with care, even reserved slots at a nearby center, can widen the pool of people who can take a job and keep the ones you have.
It also fits the moment. Hiring is slow, inflation picked up again in September, and families are squeezed from several directions at once. For a business competing for reliable workers, a benefit that solves a real problem can matter more than a small raise.
Where to start
- Ask your employees what they need. Infant care, after-school care and odd-hour care are very different problems.
- Call your local child care resource and referral agency. They know local capacity and can act as the intermediary the new rules allow.
- Talk to your tax advisor about which costs qualify and how recapture would apply. If you hire through workforce programs, ask about the hiring tax credits that may also apply.
- Talk to us. Our employer partnerships connect businesses with training and support services, and we can help you think through child care as part of a recruiting and retention plan.
