Here’s what HIVE AI had to say about “How is the employer-provided childcare tax credit enhanced?”:
How the employer-provided childcare tax credit is enhanced (effective in 2026)
For amounts paid or incurred after December 31, 2025 (generally starting with tax year 2026), the employer-provided child care credit under IRC § 45F is enhanced in several ways:
- Increased credit percentage for qualified child care facility expenditures: the credit rate is increased from 25% to 40% (and to 50% for an eligible small business).
- Increased maximum annual credit: the overall dollar cap is increased to $500,000 per year ($600,000 per year for an eligible small business).
- Inflation adjustment for the maximum credit: for taxable years beginning after 2026, the $500,000 and $600,000 maximums are adjusted for inflation. 1 This timing is also reflected in IRS Rev. Proc. 2025-32.
- Expanded ways to provide care through third parties: the rules are expanded so the credit can apply where the employer provides child care services under a contract with an intermediate entity that, in turn, contracts with one or more qualified child care facilities.
- Clarification for jointly owned/operated facilities: a facility doesn’t fail to qualify solely because it is jointly owned or operated by the employer and other persons.
- New “eligible small business” definition for the higher rate/cap: an eligible small business is defined by reference to the section 448(c) gross receipts test, determined by substituting a 5-taxable-year period in place of 3 years (and related 5-year substitutions).
Prior-law amounts (for context)
Before these enhancements, IRS guidance commonly described the credit as capped at $150,000 per year and generally equal to 25% of qualified child care facility expenditures plus 10% of qualified resource and referral expenditures.
Sources
1 – One Big Beautiful Bill Act Sec. 70401. Enhancement of employer-provided child care credit
2 – Rev. Proc. 2025-32
3 – IRS – Publication 5964 Employer-Provided Childcare Tax Credit
4 – Employer-provided childcare credit
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