Federal child care credit expands sharply for 2026

For tax years beginning in 2026, the federal employer-provided child care credit covers 40% of qualified child care expenditures — 50% for eligible small businesses — up to $500,000 a year ($600,000 for small businesses). That's a step change from the prior 25% and $150,000 cap.

Qualified spending includes building or operating a facility, and — the part most mid-size employers miss — contracting with local providers for employee care, including consortium arrangements with other employers.

Awareness is the gap: surveys consistently find most eligible employers have never heard of the credit. The estimator in the Employer Toolkit turns the statute into a number you can bring to your CPA. Educational information, not tax advice.