Employer-Provided Childcare Credit (Section 45F) Explained

The employer provided childcare credit, section 45F, was a modest credit for two decades: 25% of what an employer spent on childcare for its employees, capped at $150,000 a year. P.L. 119-21, section 70401, rewrote it for amounts paid or incurred after December 31, 2025. The rate is now 40%, or 50% for an eligible small business, the cap is $500,000 or $600,000, and two common arrangements that used to be doubtful, contracting through an intermediary and sharing a facility with other employers, are written into the statute. This guide covers the new amounts, what spending counts, the facility rules, recapture, the basis and deduction rules, and Form 8882, from section 45F and the IRS page for tax year 2026 and later, updated July 23, 2026.

What changed for amounts paid after December 31, 2025

The effective date follows the money, not the tax year. Section 70401(g) applies the amendments to amounts paid or incurred after December 31, 2025, so a fiscal-year employer can have both rates inside one return. Section 45F(b)(2) indexes the $500,000 and $600,000 caps for tax years beginning after 2026 using 2025 as the base year; the 2026 caps are the unindexed statutory figures.

Who gets the 50% rate: the eligible small business test

Section 45F(c)(4) defines an eligible small business as one that meets the gross receipts test of section 448(c), with two substitutions: a 5-taxable-year averaging period instead of 3, and a 5-year period in the aggregation rule. Rev. Proc. 2025-32, section 4.30, sets the section 448(c) amount for tax years beginning in 2026 at $32,000,000, and the IRS page for 2026 and later states the test as average annual gross receipts over the preceding five-year period not exceeding that figure. The section 448(c) rules aggregate the receipts of related entities, so a company inside a larger group is measured with the group.

What counts as a qualified childcare expenditure

Section 45F(c)(1)(A) lists three kinds of spending, each with its own conditions:

• Building or buying a facility. Amounts paid to acquire, construct, rehabilitate or expand property that will be used as part of a qualified childcare facility of the employer, that is depreciable or amortizable, and that is not part of the principal residence of the employer or any employee.
• Operating a facility. The operating costs of the employer's qualified childcare facility, including the cost of training employees, scholarship programs, and higher compensation for staff with more childcare training.
• Contracting for care. Payments under a contract with a qualified childcare facility to provide childcare services to the employer's employees, or, for amounts paid after 2025, under a contract with an intermediate entity that contracts with one or more qualified facilities to provide those services.

Nothing above the fair market value of the care counts. A separate 10% credit applies to qualified childcare resource and referral expenditures, meaning amounts paid under a contract to provide resource and referral services to employees, as long as the services do not favor highly compensated employees.

The facility rules

A qualified childcare facility under section 45F(c)(2) has childcare assistance as its principal use (a rule that does not apply to the operator's own principal residence) and meets every applicable state and local law, including licensing as a childcare facility. Three more conditions apply to the employer claiming the credit: enrollment must be open to its employees during the year; if the facility is the employer's principal trade or business, at least 30% of enrollees must be dependents of its employees; and use of the facility, or eligibility to use it, must not discriminate in favor of highly compensated employees under section 414(q). Section 45F(c)(2)(C), added in 2025, says a facility does not fail these rules merely because the employer owns or operates it jointly with other persons, which opens the door to two or three employers sharing one center.

Illustration: three employers in 2026

The same $200,000 of contract payments would have produced a $50,000 credit under the pre-2026 25% rate. The larger employer that builds a facility reaches the $500,000 cap at $1,250,000 of construction cost; the small business reaches its $600,000 cap at $1,200,000.

Recapture within 10 years

The facility portion of the credit comes with a string. Under section 45F(d), if a recapture event occurs before the 11th year, the employer's tax for that year rises by a percentage of the credit that was used to reduce tax and that came from acquiring, constructing, rehabilitating or expanding the facility. A recapture event is the facility ceasing to operate as a qualified childcare facility, or the employer disposing of its interest in it, unless the buyer agrees in writing to assume the recapture liability. A casualty loss restored by rebuilding within a reasonable period is not a recapture event. Year 1 begins on the first day of the tax year in which the facility is placed in service.

Contract payments and operating costs are not subject to recapture; only the acquisition and construction credit is. A recaptured amount is added back to the property's basis, and the recapture tax is not treated as tax for purposes of figuring other credits.

Basis, deductions, and Form 8882

Section 45F(f) prevents a double benefit in two ways. The basis of property acquired, constructed, rehabilitated or expanded is reduced by the amount of the credit determined on that spending, so the $1,000,000 facility in the illustration is depreciated from $600,000. And no deduction or credit is allowed under any other provision for the amount of the credit, so an employer that pays a center $200,000 and takes an $80,000 credit deducts $120,000. Members of a controlled group under section 52(a) and (b) are treated as a single taxpayer, and a partnership allocates the credit among its partners.

The credit is claimed on Form 8882 and carried to Form 3800 as part of the general business credit, where the section 38 limit and the 1-year carryback and 20-year carryforward apply. One caution on the form itself: the About Form 8882 page, reviewed May 14, 2026, still lists the Rev. December 2017 form as current, and that form prints 25% and $150,000. The statute and the IRS page for 2026 and later govern the amounts; check IRS.gov/Form8882 for a revised form before a 2026 return is filed. An employer that adds childcare support in 2026 will usually be looking at the paid family and medical leave credit at the same time, since P.L. 119-21 made that one permanent in the same title, and both sit in the federal tax credits for small businesses list. Whether a contract with a local center, a shared facility with neighboring employers, or an on-site build produces the best after-tax result is a modeling exercise that Forward Tax Planning on the Tax Planning page puts in writing with the employer's CPA.

Sources: 26 U.S.C. 45F; P.L. 119-21, section 70401; 26 U.S.C. 448; IRS, Rev. Proc. 2025-32, section 4.30; IRS, Employer-provided child care credit: Tax year 2026 and later; IRS, Employer-provided child care credit: Tax year 2025 and earlier; IRS, Form 8882 (Rev. December 2017); IRS, About Form 8882. Rules and figures checked against these sources on September 26, 2026. This is general information, not tax advice for your situation. Tax services are provided by licensed tax professionals under a separate engagement agreement. BEG does not provide tax advice.