New Tax Policy Makes Child Care More Affordable—for Families and Employers

Helping you support what matters most.

Recent federal legislation has expanded tax incentives designed to ease the cost of child care for working families—and to help employers make a meaningful difference.

What's New?

Bigger benefits for employers.

Employers can be eligible for up to a 50% tax credit on dollars contributed to employer sponsored child care, an increase from 25%.

The maximum annual credit has increased from $150,000 to $500,000-$600,000 annually depending on business size, with smaller businesses eligible for the larger limit and percentage:

Eligible expenses include:

Onsite or near-site child care facilities
Third-party partnerships with licensed care providers
Backup/emergency care services
Financial subsidies or tuition stipends

Expanded family tax credits

Families also benefit from:

Child Tax Credit raised to $2,200 per child under 17 (more refundable, and now inflation-adjusted), for most families.
Dependent Care Tax Credit covers up to 50% of care expenses—up to $3,000 for one child, or $6,000 for two or more each year.
Dependent Care Flexible Spending Account cap increased from $5,000 to $7,500—allowing families tax advantaged options for their child care costs, including subsidy benefits or pre-tax contributions to a Flexible Spending Account (FSA).

Why this matters for employers.

With the cost of care rising and the labor market evolving, child care support isn’t just a family issue—it’s a workforce issue. These tax incentives make it easier for organizations to:

Offer high-impact benefits without incurring the full cost
Improve retention and productivity, particularly among working parents
Position themselves as employers of choice, especially in competitive industries

How Learning Care Group can help.

At Learning Care Group, we specialize in helping organizations:

Design and implement customized child care benefit programs
Offer access to over 1,110 community schools nationwide
Build on-site or near-site child care centers or subsidize guaranteed spaces

We’ll work with you to create a child care strategy that aligns with your culture, your goals—and your bottom line.

Let's talk about your goals.

Whether you’re considering new benefits or maximizing your current offerings, our team can help you take full advantage of the latest legislation.

Frequently Asked Questions

It's a federal tax credit (IRS Code §45F) that allows businesses to recoup a portion of qualified child care expenses they cover on behalf of employees. The updated credit now covers up to 50% of eligible expenses, with a cap of $500,000 for large employers and $600,000 for small businesses annually.

Eligible expenses may include:

Developing or operating an onsite or near-site child care center
Contracting with licensed third-party child care providers
Offering backup or emergency child care services
Providing direct subsidies or tuition assistance
Administering a child care referral service

All expenses must meet IRS guidelines and be properly documented to qualify.

While final IRS guidance is pending, businesses with fewer than 500 employees are likely to fall under the “small employer” category for these enhanced benefits. We recommend consulting your tax advisor to confirm how the rules apply to your organization.

Yes, both benefits can be offered—but it’s important to coordinate them carefully. The IRS sets an annual combined limit on tax-advantaged dependent care benefits (including FSAs and employer-paid subsidies). If the total amount exceeds the limit (now $7,500 for a couple married, filing jointly), the excess may be treated as taxable income to the employee. We recommend working with a tax advisor or benefits specialist to structure these offerings in a way that maximizes value and avoids unintended tax consequences.

The annual contribution limit increased from $5,000 to $7,500 per household, helping families save more in pre-tax income to use toward child care expenses like preschool, daycare, after-school programs, and summer camps. This also allows employers to contribute more towards employee child care subsidy in lieu of dependent care FSA accounts.

Businesses claim the Employer-Provided Child Care Credit by filing IRS Form 8882 with their annual tax return. Be sure to track and document qualifying expenses, verify provider licensing, and maintain compliance with applicable rules. Partnering with a tax advisor is strongly recommended.

Yes. Many companies partner with third-party providers like Learning Care Group to offer priority access, guaranteed spaces, tuition subsidies, or back-up care at nearby locations. As long as the care is provided by a licensed facility and falls under the IRS definition of child care assistance. We recommend reviewing with a tax advisor to ensure compliance.

Implementation timelines depend on the type of benefit you choose. Onsite center development can take several months, while options like provider partnerships, guaranteed spaces, tuition subsidies, or backup care programs can often be launched in just a few weeks.

Importantly, child care benefits can be implemented at any time during the year—they’re not limited to open enrollment periods. That means you can start supporting your workforce as soon as you're ready, without waiting for a benefits cycle.

Let’s Talk

We'd love to chat and learn more about the child care benefit needs of your company. Please complete this form, and we’ll be in touch soon. Thank you!

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Get In Touch

Interested in adding child care benefits? Contact one of our Partnership Specialists at 866.829.0027 or partnerships@learningcaregroup.com today.

Current employees, please visit the Employee Lounge or contact us at 877.767.5241.

Parents, job seekers, and all other inquiries, please contact us here.

The information provided here is for general informational purposes only and is not intended as tax or legal advice. Learning Care Group and its representatives are not licensed tax professionals. Employers and families should consult with a qualified tax advisor or legal counsel regarding their specific circumstances and the applicability of federal tax credits or dependent care benefits.

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