The 2026 complete guide to the Section 45F tax credit expansion under the One Big Beautiful Bill Act (OBBBA).
The Employer-Provided Child Care Tax Credit, established under Internal Revenue Code (IRC) Section 45F, is a general business tax credit designed to encourage employers to support their employees' child care needs. By claiming the 45F credit, businesses can directly offset their federal income tax liability for a significant portion of their qualified child care expenditures.
Historically, the credit was capped at $150,000 per year and covered 25% of qualified expenses. However, beginning in 2026, the recently passed One Big Beautiful Bill Act (OBBBA) dramatically expanded the 45F credit, making employer-sponsored child care more financially feasible than ever before.
The OBBBA transformed the 45F tax credit from a modest incentive into a powerful financial tool for workforce retention. The legislation increased both the credit rate and the maximum annual cap, while introducing special provisions for small businesses.
Note: The $500,000 and $600,000 maximum credit amounts will be annually adjusted for inflation for tax years beyond 2026.
To qualify for the enhanced 50% credit rate and the higher $600,000 annual cap, a business must meet the gross receipts test under IRC Section 448(c). Generally, this means the business must have average annual gross receipts of $32 million or less over the preceding three tax years.
The IRS provides flexibility in how employers structure their child care support. Under Section 45F, qualified expenditures generally fall into these categories:
Payments made under a contract with a qualified child care facility to provide child care services to employees. This includes participating in Tri-Share or Duo-Share cost-sharing programs.
Payments to third-party intermediary organizations that coordinate child care services with multiple licensed providers on behalf of the employer.
The costs of operating an employer-owned child care facility, including training costs, employee compensation, and scholarships.
Costs to acquire, construct, rehabilitate, or expand property used as the taxpayer's qualified child care facility.
Important Limitation: Qualified child care expenses exclude any amounts that exceed the fair market value of providing such care.
The most cost-effective way for employers to utilize the 45F tax credit is by combining it with a Tri-Share child care program. In a Tri-Share model, the cost of child care is split three ways: 33% Employer, 33% State Government, and 33% Employee.
When an employer pays their 33% share, that payment qualifies as an eligible expenditure under Section 45F. The employer can then claim a 40% (or 50%) federal tax credit on that contribution.
Assume an employee's total child care cost is $12,000 per year.
Even without state-level credits, the federal 45F credit alone reduces the employer's net cost to just $2,400 per year — a highly cost-effective strategy for retaining top talent.
While the 45F credit offers substantial benefits, employers must navigate several compliance rules:
The expanded limits under the One Big Beautiful Bill Act (OBBBA) apply to eligible amounts paid or incurred after December 31, 2025. For the 2025 tax year, the old limits (25% rate, $150,000 cap) still apply.
Yes. The OBBBA explicitly permits eligible small businesses to pool their resources to provide child care to employees and still claim the credit. This includes using a third party to facilitate child care services for workers across multiple small employers.
Yes. If an employer contracts with a qualified, licensed child care facility in the remote worker's local community, those payments can qualify for the 45F credit, provided all other requirements are met.
For 2026, the maximum annual 45F credit is $500,000 for general businesses and $600,000 for eligible small businesses (those with average annual gross receipts of $32 million or less). These caps will be adjusted for inflation in future years.
Yes. The employer's share of child care costs in a Tri-Share program qualifies as an eligible expenditure under Section 45F. Employers can claim a 40–50% federal tax credit on their Tri-Share contribution, potentially reducing their net cost to as low as 3.3% of total child care costs when combined with state credits.
To qualify for the enhanced 50% credit rate and $600,000 cap, a business must meet the gross receipts test under IRC Section 448(c), which generally means average annual gross receipts of $32 million or less over the preceding three tax years.
If an employer discontinues the use of a child care facility within the first 10 years after claiming the credit for construction or acquisition costs, a portion of the credit may need to be repaid. The recapture amount decreases over the 10-year period.
Yes. The One Big Beautiful Bill Act made the Section 45F credit permanent. Unlike previous versions that required periodic renewal, the expanded credit is now a permanent part of the tax code, giving employers long-term certainty when planning child care investments.