The Employer-Provided Childcare Credit
If you help your team with child care - running a facility, contracting one, or paying for resource-and-referral services - you can claim up to half of it back. This credit was quadrupled for 2026, turning a rarely-used perk into real money.
In a nutshell
- Worth 40% of qualified child-care spend - 50% for an eligible small business (up from just 25% in 2025).
- Plus 25% of resource-and-referral spend (up from 10%).
- Capped at $500,000 per year - $600,000 for a small business (≈ $31M or less in gross receipts). Inflation-indexed after 2026.
- New for 2026: contracting jointly with other businesses or through an intermediary now qualifies - you don't need to run your own center.
- Watch the 10-year recapture: part of the credit is clawed back if the facility closes or changes hands within a decade.
- Claimed on IRS Form 8882, flowing into the General Business Credit (Form 3800).
How the math works
Worked example
A small business (under $31M in receipts) contracts a nearby childcare center for its staff - $40,000 for the year - and spends $4,000 on a resource-and-referral service.
- • Facility credit: 50% × $40,000 = $20,000
- • Resource & referral: 25% × $4,000 = $1,000
- • Credit: $21,000 (well under the $600,000 cap)
What P.A.I.D. needs - no connection required
This one comes straight off your books - no payroll integration. Enter your child-care facility/contract spend, your resource-and-referral spend, and your prior-year gross receipts (which sets the small-business rate), and we compute the credit and fill out Form 8882. Keep the invoices and operating agreements; your CPA confirms they qualify before filing.
Do you qualify? The real limits
The bright-line tests and the things that quietly disqualify a business (2026 tax year).
What can disqualify you
- General employee benefits that aren't a qualified childcare facility or a qualifying contract don't count.
- A facility used mainly by owners or highly-compensated employees fails the qualified-facility test.
- 10-year recapture applies if the facility stops operating or changes ownership.
Common reasons businesses get denied
- Spend that isn't a qualified childcare facility or resource-and-referral cost under §45F(c).
- A facility that discriminates in favor of highly-compensated employees.
- Triggering recapture by ceasing operation or selling within 10 years.
- Not reducing basis / the deduction by the credit (no double benefit).
Even if you qualify
- Nonrefundable (General Business Credit liability limit; unused carries back 1 / forward 20).
- Basis or the deduction is reduced by the credit amount (no double benefit).
Check your state
State figures as of June 2026; many are indexed and change mid-year. Confirm with your state labor department and CPA.
Limits that apply to every federal credit
- They're nonrefundable
- Every credit here offsets income tax but can't create a refund (§38 liability limit). A business with little or no tax liability gets little benefit this year - unused amounts carry back 1 year and forward up to 20 (§39).
- Related businesses are combined
- If you own multiple businesses under >50% common control, the IRS treats them as ONE employer for the size tests (§52/§414). Several small entities can together blow past the under-25-FTE, 30-employee, or 100-employee ceilings even though each looks small alone.
- No double-dipping
- The deduction for the wages/premiums/expenses behind a credit is reduced by the credit amount (§280C), and the same dollar can't fund two different credits.
- Pass-through & passive limits
- For S-corps and partnerships the credit flows to owners on a K-1, where each owner's liability and passive-activity limits (§469) decide how much they can actually use.
Plain-English summary, not tax advice. Your CPA confirms eligibility for your specific business.
Want to know what this is worth for your business?
Answer a few quick questions and we'll estimate which credits you could claim - no pressure, no commitment.