How Can the Expanded Employer-Provided Childcare Credit Create Opportunities for Your Business?

Key enhancements to the Employer-Provided Childcare Credit in 2026

For many organizations, supporting employees with childcare solutions is no longer just a benefit. It has become a strategic decision that can influence talent retention, productivity, and long-term growth. The employer-provided childcare credit under IRC Section 45F is a general business credit that lets employers offset income tax for a portion of their costs to provide or subsidize qualified childcare facilities and related services for employees, with the purpose of encouraging employer investment in accessible, high-quality childcare. Beginning in 2026, recent enhancements to IRC Section 45F may make these investments more financially attractive than ever.

The updated credit provides a meaningful incentive for employers to rethink how they support working families. Eligible businesses can now claim a credit equal to 40% of qualified childcare expenditures, or 50% for eligible small businesses, plus 10% of qualified childcare resource and referral expenditures. With an increased annual cap of $500,000 ($600,000 for eligible small businesses), the potential tax benefit is significantly higher than in prior years.

Broadening eligibility and increasing flexibility

The definition of qualified expenditures has also evolved, giving employers more flexibility in how they structure childcare support. Qualifying costs may include:

• Investments in facilities, such as acquiring, constructing, or improving a childcare center
• Ongoing operating expenses, including staff training, scholarships, and enhanced compensation for skilled caregivers
• Payments to third-party childcare providers under contract
• Payments to intermediary organizations that coordinate services with multiple providers

Additionally, businesses can now participate in jointly owned or operated childcare facilities, creating opportunities to collaborate with other employers to share costs and resources.

Maximizing the value of your childcare investment

Consider the potential impact: an employer investing $1 million in a qualified childcare facility could generate a $400,000 tax credit, or $500,000 if the business qualifies as a small employer. This level of support can significantly offset upfront costs and improve the overall return on investment.

Beyond direct financial benefits, employers may also enhance their employee value proposition. In many cases, the value of employer-provided childcare assistance may be partially or fully excluded from employees’ taxable income, creating a win-win for both the organization and its workforce.

Important considerations

As with many tax credits, thoughtful planning is essential. Employers should be aware that:

• Claiming the credit reduces the tax basis of related property and the deductibility of associated expenses
• Certain events, such as discontinuing use of a childcare facility, may trigger credit recapture
• Proper documentation and structuring are key to maximizing benefits while maintaining compliance

A strategic opportunity worth exploring

Beyond a tax savings opportunity, the enhanced Employer-Provided Childcare Credit is an opportunity to align financial strategy with workforce needs. For employers already considering ways to support employees and remain competitive in today’s labor market, this credit may help turn that vision into a practical, cost-effective solution.

If your company would like to explore how this credit could fit into your broader strategy, we can provide sound advice. Contact your Keiter Opportunity Advisor | Email | Call: 804.747.0000.

Sources:

• Thomson Reuters Checkpoint®
• Employer-provided childcare credit | IRS.gov
• 26 USC 45F: Employer-provided child care credit | uscode.house.gov