# Federal Tax Incentives for Employer-Supported Child Care

*Community Engagement Hub — Employer Toolkit*

> **Educational information, not tax advice.** Figures reflect federal law
> for tax years 2026 and later, verified 2026-07-15 against IRS guidance.
> Consult a qualified tax professional before acting.

## 1. The employer-provided child care credit (IRC §45F)

Substantially expanded for tax years beginning in 2026:

- **40%** of qualified child care expenditures — **50%** for eligible small
  businesses
- Plus **10%** of qualified child care resource & referral expenditures
- Capped at **$500,000** per year (**$600,000** for eligible small
  businesses), adjusted for inflation after 2026
- **Eligible small business:** meets the §448(c) gross receipts test —
  average annual gross receipts over the preceding five years not exceeding
  $32 million (2026 threshold)

**Qualified expenditures include:** acquiring, constructing, rehabilitating,
or operating a qualified child care facility; contracts with qualified
child care providers to serve employees (including pooled/consortium
arrangements); resource & referral services.

**Fine print to discuss with your CPA:** recapture rules if a facility
stops qualifying within 10 years; the facility's principal use must be
child care; care must not discriminate in favor of highly compensated
employees.

## 2. Dependent Care FSA (IRC §129)

Employees set aside pre-tax dollars for care expenses. Modest employer
cost (plan administration), meaningful employee benefit. Employer matching
contributions are possible within plan limits.

## 3. They stack

An employer can administer an FSA, contract for reserved slots, and claim
§45F on qualified expenditures. Use the hub's interactive estimator for an
illustrative calculation, then bring the output to your tax professional.

**Sources:** IRS, "Employer-provided child care credit (tax year 2026 and
later)"; 26 U.S.C. §45F; CRS Report IF12379.

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*Demonstration content — verify current figures before relying on them.*