2026 Update
The Employer-Provided Child Care Tax Credit (§45F) for 2026
This is a different benefit from the Dependent Care FSA covered throughout the rest of this site — it's a federal tax credit under Internal Revenue Code §45F for employers who directly fund or contract child care, not a payroll-deduction benefit for employees. The One Big Beautiful Bill Act (OBBBA) substantially expanded it starting with the 2026 tax year.
What changed for 2026
- Credit rate: rose from 25% to 40% of qualified child care expenditures (50% for eligible small businesses — under $32 million in gross receipts).
- Annual cap: rose from $150,000 to $500,000 ($600,000 for eligible small businesses), adjusted for inflation starting after 2026.
- A qualified child care facility can now be jointly owned or operated with other employers, making shared/consortium facilities easier to structure.
What actually qualifies
This is the part employers most often get wrong: §45F only covers three categories of spending, and a standard Dependent Care FSA is not one of them.
- Costs to acquire, construct, rehabilitate, or expand property used as part of a qualified child care facility.
- Operating costs of a qualified child care facility — including staff training, scholarship programs, and compensation increases for qualified child care personnel.
- Amounts paid under a contract with a qualified child care facility to provide care to employees, or under a contract for child care resource and referral services.
Your Dependent Care FSA — including any employer top-up contributions to employee elections — does not qualify for this credit. That's a separate benefit governed by different rules (see how to set up a Dependent Care FSA). The two can be offered side by side, but don't combine their savings when estimating value — a DCFSA saves payroll tax on employee elections; §45F is a credit against your company's own tax liability for money you spend building or contracting child care directly.
How to claim it
Employers claim the credit on IRS Form 8882, Credit for Employer-Provided Childcare Facilities and Services. Given the scale of the 2026 changes — particularly the small-business rate and cap — this is worth a conversation with your CPA if you're considering building, operating, or contracting for child care access for your team.
A state-level example: Indiana
Some states layer their own credit on top of the federal one. Indiana's Employer Child Care Expenditure Credit offers 50% of qualified expenditures at Indiana-licensed child care facilities, up to $100,000 per employer, subject to a statewide annual cap awarded on a first-come basis. A recent expansion broadened eligibility to employers with up to 500 employees and extended the credit to operating expenses, not just capital costs. This is Indiana-specific — check your own state's department of revenue for a similar program, since several states have begun adding their own versions.