Employer-Provided Child Care Tax Credit Expansion

A major expansion to the employer-provided child care credit offers powerful incentives to invest in the benefits today’s working families need. Here’s what you need to know to use this opportunity to build a stronger, family-first workforce.

Two children playing together

What is the employer-provided child care credit?

Originally introduced in 1986, the employer-provided child care credit (IRC 45F) is an income tax credit that was designed to encourage businesses to invest in child care support for working families. It allowed employers to claim a nonrefundable tax credit up to $150,000 annually, covering 25% of qualified child care facility costs and 10% of resource and referral expenses. 

The employer-provided child care credit expansion 

A new law provides significant expansion to the employer-provided child care income tax credit — one of the largest federal investments in employer-supported child care in decades. This expanded credit, effective for expenses incurred on or after January 1, 2026, reflects a growing understanding that quality child care is essential for building a strong, resilient workforce. It's a major step forward for working families and the employers who champion them and makes it easier and more affordable for businesses to offer child care benefits that help employees thrive at work and home.

The credit expansion includes:

  • A higher maximum credit: the maximum tax credit jumps from $150,000 to $500,000 for qualified child care expenses. The credit will be adjusted for inflation in future years.
  • Larger percent of qualified expenses: the credit now covers 40% of qualified child care facility expenses for most businesses, up from 25% (the amount of child care resource and referral expenses that can be claimed under the credit remains steady at 10%)
  • Enhanced support for small businesses: eligible small businesses can claim a credit up to $600,000, with 50% of qualified expenses covered

Why it matters to employers

The expanded employer-provided child care credit offers a timely, tax-smart way to invest in benefits that help employees stay focused, present, and supported in every part of their lives. Strategic and financial advantages for employers include:

  • Offsetting a significant portion of the investment in a Bright Horizons program or similar child care benefit
  • Strengthening talent recruitment and retention, especially among caregivers
  • Enhancing workforce well-being and reducing absenteeism
  • Reinforcing a reputation as a family-supportive employer

Which expenses may qualify for this credit?  

Qualifying expenditures might include:

  • Building, updating, or running a licensed on-site child care center (including fees paid to a third party to operate the center)
  • Partnering with third-party providers for back-up child care
  • Supporting employees’ child care needs in other ways, such as subsidizing employees’ tuitions, or enrollment priority at select child care centers
  • Offering child care referral or resource programs

To qualify, employers must:

  • Ensure applicable child care facilities are properly licensed under state/local rules
  • Not discriminate in favor of highly compensated employees

How can employers take action?

Caregiving benefits are one of the top-rated supports according to SHRM’s 2025 Employee Benefits Survey, with more than two-thirds of respondents rating them very or extremely important.

This expanded income tax credit of up to $500,000 may spur additional investment because it enables employers to offer impactful programs and offset a substantial amount of the cost. 

Employers should:

  • Consult with their tax advisors to determine the extent to which the costs of specific services purchased from Bright Horizons qualify for the credit
  • Explore how the expanded tax credit may impact the ROI of existing or evaluated child care benefits
  • Incorporate this cost offset opportunity into their benefits strategy, budgeting, and business case planning
  • Reach out to Bright Horizons to explore the cost of care solutions that the employer has determined qualify for the credit 

Family-first benefits from Bright Horizons

The expanded employer-provided child care tax credit provides important financial support to create or improve child care benefits that truly meet working families’ needs. Bright Horizons offers world-class child care solutions designed to support employees at every stage of life. We’re here to help you build a family-first benefits strategy that delivers exceptional employee experiences and strong business results.

Contact us today to get started.

Disclaimer: This summary is qualified in its entirety by IRC 45F and employers looking to explore the child care tax credit expansion should consult with their tax advisors and/or legal counsel.

Frequently asked questions

Are there any other child care-related provisions in the Act?

OPEN

Yes, other child-care related provisions taking effect in 2026 include:

  • An increase in the contribution limit for Dependent Care Assistance Programs (DCAP). A DCAP is an employer-sponsored benefit that helps employees pay for eligible dependent care expenses using pre-tax dollars. The contribution limit will increase from $5,000 per household to $7,500 per household
  • An increase to the Child Tax Credit (CTC). The CTC is an individual federal tax benefit designed to help families with the cost of raising children. The maximum credit will increase from $2,000 per child to $2,200 per child 

How does the credit affect organizations working with Bright Horizons?

OPEN

The employer-provided child care tax credit may be able to offset the cost of some services provided by Bright Horizons such as costs paid for:

  • The design, development, construction or operation of child care centers for employee use
  • Tuition subsidies, priority access fees and other support to provide child care services to employees in child care centers
  • Back-up child care services provided to employees
  • Child care resource and referral services provided to employees

Bright Horizons encourages employers to consult with their tax advisor to determine the extent to which the costs of specific services purchased from Bright Horizons qualify for the credit.

What type of expenses qualify?

OPEN

Qualified expenses include building, upgrading, or running a licensed on-site child care center, fees to third-party care providers for those services, and offering child care resource and referral services to employees.

You don’t need to operate your own child care center to qualify. Partnering with a provider like Bright Horizons to deliver family care benefits counts toward the expanded credit.  

Additionally, expenditures for the renovation or expansion of an existing licensed child care facility can qualify for the credit. 

Bright Horizons encourages employers to consult with their tax advisor to determine the extent to which the costs of specific services purchased from Bright Horizons qualify for the credit.

What is the maximum federal income tax credit for child care benefits in 2026?

OPEN

The maximum credit amount is $500k in 2026, and the credit amount will be adjusted for inflation in subsequent years.

How does my business claim the credit?

OPEN

To claim the credit, file IRS Form 8882 with your organization’s federal income tax return. A tax advisor can help make sure your expenses are eligible and your form is filled out correctly.

If you work with Bright Horizons, we will work closely with your organization to provide the applicable program and spend reporting needed to help complete and claim your income tax credit.

How does the credit impact state or local child care subsidies or tax incentives?

OPEN

This federal credit can be used along with many state or local programs. A tax professional can help you understand how they work together in your specific location.

Do all employer-sponsored child care benefits qualify for the same tax credit?

OPEN

The maximum employer income tax credit amount is $500,000 in 2026 for qualifying child care programs. However, the credit can equal a larger portion of expenses for a child care facility than for a resource and referral program. Up to 40% of child care facility costs can be covered by the credit, as compared with up to 10% of child care resource and referral costs.

How can this credit reduce my costs with Bright Horizons?

OPEN

The credit can cover up to 40% of eligible costs for qualifying employers — or 50% for small businesses.

When does the new income tax credit rate take effect?

OPEN

The expanded tax credit applies to eligible child care expenses incurred on or after January 1, 2026.

Explore solutions for your employees

Family care benefits have never been more important. See how Bright Horizons can support your team.

Looking to book care or access your employee benefits? Get started here.