What is the employer-provided child care credit?
Originally introduced in 1986, the employer-provided child care credit (IRS Section 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 bill significantly expands the employer-provided child care 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 can 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:
- Speak with their tax advisors to assess the potential impact of the credit
- Explore how the expanded tax credit may impact the ROI of existing or evaluated child care benefits
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.