Section 45F: Employer-Provided Child Care Tax Credit
Section 45F may help an employer reduce the federal tax cost of creating, expanding, operating or contracting for child care. For qualifying amounts paid or incurred after December 31, 2025, the credit equals 40 percent of qualified child care expenditures, or 50 percent for an eligible small business, plus 10 percent of qualified resource and referral expenditures.
For 2026, the combined annual limit is $500,000, or $600,000 for an eligible small business. The credit is part of the general business credit. It is not an automatic cash payment, and the amount a business can use depends on its facts and tax position.
Credit Overview
Section 45F is a federal tax credit that offers employers credit for expenditures made to create, expand, operate or contract for child care for their employees. For qualifying amounts paid or incurred after December 31, 2025, the credit equals 40 percent of qualified child care expenditures (50 percent for an eligible small business) plus 10 percent of qualified resource and referral expenditures up to a credit limit of $500,000 ($600,000 for eligible small businesses).
Qualifying expenditures for employers include both the creation of additional child care for their employees and credit for expenses from paying a portion of employees' child care at any facility.
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The Expanded Credit at a Glance
50% of qualified child care expenditures for an eligible small business (40% for other employers)
The 2026 credit is equal to 40% of a company's qualified child care expenditures (50% for a small business). These costs apply to building and construction costs and providing eligible benefits for employees.
10% of qualified child care resource and referral expenditures
Qualified child care resource and referral expenditures remain at 10 percent. The services must be provided under a qualifying contract and must satisfy the nondiscrimination rule.
$500,000 maximum 2026 credit amount ($600,000 for eligible small businesses)
Credits are eligible to be carried back one year and carried forward twenty years. The maximum amounts and eligibility limits will be indexed for inflation after 2026.
Generally, for a corporation or partnership with a tax year beginning in 2026, the eligible small business gross receipts test is met when average annual gross receipts over the preceding five year period do not exceed $32 million. Aggregation and other special rules may change the result. A tax advisor should confirm the applicable rate before an estimate is used.
What Changed in 2026
| Before 2026 | 2026 and later |
|---|---|
Maximum credit size |
|
| $150,000 | $500,000 ($600,000 for eligible small businesses) |
Qualified child care expenditure credit |
|
| 25% of qualified child care expenditures | 40% of qualified child care expenditures (50% for eligible small businesses) |
Qualified resource and referral expenditure credit |
|
| 10% of qualified child care resource and referral expenditures | 10% of qualified child care resource and referral expenditures |
Intermediary expenditure eligibility? |
|
| No | Yes |
What Section 45F May Cover
| Category | What it covers |
|---|---|
Child care facility ownership |
Amounts paid or incurred to acquire, construct, rehabilitate or expand depreciable or amortizable property used as part of a qualified child care facility. The facility must be a child care center. |
Operation of a child care center |
Qualified operating costs of the employer's facility, including certain training, scholarship and increased compensation costs connected to child care staff training. |
Contracted child care facility slots |
Amounts paid directly to qualified child care providers for employee slots qualify. |
Contracted child care slots through an intermediary |
Employers contracting with providers through a third-party intermediary can qualify. |
Child care resource and referral (CCR&R) expenditures |
Amounts paid to CCR&Rs for helping employees locate and evaluate child care qualify under the 10% credit rate. |
Qualified Child Care Facility Requirements
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The building's principal use must be to provide child care. It cannot be a Family Child Care Home or other type of facility.
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A cash stipend or employee reimbursement does not automatically qualify under Section 45F.
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Qualified expenditures cannot exceed the fair market value of the child care provided.
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The portion of spending used to determine the credit cannot also support another deduction or credit.
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Certain facility property basis must be reduced by the amount of the credit.
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A facility that does not satisfy applicable law, licensing and Section 45F requirements is not a qualified facility for this purpose.
What a Qualified Child Care Facility Must Satisfy
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Its principal use must be to provide child care assistance, subject to the residence exception in the tax law.
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It must satisfy all applicable state and local laws and regulations, including required child care licensing.
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Enrollment must be open to employees of the taxpayer during the tax year.
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Use of the facility or eligibility to use it cannot favor highly compensated employees.
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If providing child care is the taxpayer's principal trade or business, at least 30 percent of enrollees must be dependents of that taxpayer's employees.
The facility does not have to be used principally by employees' children. The federal rule says its principal use must be child care assistance, enrollment must be open to employees, and the program cannot favor highly compensated employees. The separate 30 percent employee dependent rule applies when child care is the taxpayer's principal trade or business. The 2026 rules also expressly address a facility that is jointly owned or operated with other persons, and every participant should document its own expenditures, rights, responsibilities and credit position.
Estimate your credit in about two minutes
Enter what you expect to spend on qualified child care and on resource and referral services, and choose your employer type. The estimator applies the 2026 rates, adds them and applies the annual limit, so you can take a defensible figure into a budget meeting.
Valley National Realty provides commercial real estate, development and property management services. This estimate is general information and is not tax, legal, accounting, licensing or investment advice. Section 45F is part of the general business credit: it is not a refund or an automatic cash payment, and the amount a business can use depends on its tax position. A facility related credit may be recaptured if the facility stops qualifying or ownership changes before the tenth tax year after it is placed in service. The rates and limits shown apply to qualifying amounts paid or incurred after December 31, 2025. Consult qualified advisors before relying on an estimate or committing funds.
The estimate shows the credit your spending generates. It is not a refund, and it is not necessarily the amount your business can use this year.
Section 45F Questions Employers Ask First
The federal Section 45F employer-provided child care tax credit is a nonrefundable federal dollar-for-dollar credit available to corporations who spend money on their employees' child care.
The Section 45F credit amounts were expanded in 2025 and went into effect on January 1, 2026. The previous credit amounts were 25% of qualified child care expenditures and 10% of qualified child care resource and referral expenditures up to a total credit of $150,000. These credits were expanded to 40% (and 50% for qualifying small businesses) of qualified child care expenditures and 10% of qualified child care resource and referral expenditures up to $500,000 (and $600,000 for qualifying small businesses).
In order to qualify to claim and use a Section 45F tax credit, a business must have for-profit status, must have a tax liability, and must actually have expenditures on their employees' child care. Individuals are not eligible to claim a Section 45F tax credit.
Eligible for the credit at 40% (or 50% for small businesses) of expenditures are expenditures relating to the construction and creation of child care facilities and any expenditures to pay for portions of employees' child care.
An employer paying for portions of their employees' plans can only receive 45F credit for these payments if they are made to qualified child care facilities, which vary by state but are generally state-licensed providers operating in dedicated child care centers. Payments made by employers for care provided at Family Child Care Homes and other types of informal child care are not eligible for 45F credit.
Yes. As of 2026, Pennsylvania offers the Pennsylvania Child Care Contribution Tax Credit Program, which offers a state tax credit equal to 30% of eligible employer contributions toward child care, up to $150 per employee per year. Only the first $500 contributed per employee per year is eligible.
No, Section 45F tax credits are not refundable. If an employer receives more 45F credit than their tax liability, they will carry over extra tax credit up to 20 years to work against their tax liability. Under the most recent rules, 45F credits will never result in cash payments for the credits.
No. Enrollment must be open to employees and the program cannot favor highly compensated employees. The 30 percent employee dependent rule applies when providing child care is the taxpayer's principal trade or business.
No. Section 45F is an employer tax credit. Section 129 dependent care assistance addresses a separate employee wage exclusion. A stipend, reimbursement or dependent care flexible spending account should not be treated as Section 45F spending without a separate review.
The IRS directs employers to Form 8882. In most cases the credit is then reported through Form 3800 as part of the general business credit. Use the latest final form and instructions for the applicable tax year.
Take the Next Step With Jump The Curve
Jump The Curve pools the investment of several employers into one near-site, professionally managed child care facility, so a business can claim Section 45F credit without building or running a center of its own. Send Valley National your headcount, your shift pattern and where your people work, and we can show you what a project in your area would involve.
Valley National Realty provides commercial real estate, development and property management services. This page is general information and is not tax, legal, accounting, licensing or investment advice. Eligibility and credit use depend on the employer's facts, tax year, entity structure, expenditures, tax liability, facility compliance and other requirements. Consult qualified advisors before relying on an estimate or committing funds.