26 USC 45F - Employer-provided child care credit

U.S Code last checked for updates: Aug 16, 2025

§ 45F.

Employer-provided child care credit

(a)

In general

For purposes of section 38, the employer-provided child care credit determined under this section for the taxable year is an amount equal to the sum of—

(1)

40 percent (50 percent in the case of an eligible small business) of the qualified child care expenditures, and

(2)

10 percent of the qualified child care resource and referral expenditures,

of the taxpayer for such taxable year.

(b)

Dollar limitation

(1)

In general

(2)

Inflation adjustment

In the case of any taxable year beginning after 2026, the $500,000 and $600,000 amounts in paragraph (1) shall each be increased by an amount equal to—

(A)

such dollar amount, multiplied by

(B)

the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2025” for “calendar year 2016” in subparagraph (A)(ii) thereof.

(c)

Definitions

For purposes of this section—

(1)

Qualified child care expenditure

(A)

In general

The term “qualified child care expenditure” means any amount paid or incurred—

(i)

to acquire, construct, rehabilitate, or expand property—

(I)

which is to be used as part of a qualified child care facility of the taxpayer,

(II)

with respect to which a deduction for depreciation (or amortization in lieu of depreciation) is allowable, and

(III)

which does not constitute part of the principal residence (within the meaning of section 121) of the taxpayer or any employee of the taxpayer,

(ii)

for the operating costs of a qualified child care facility of the taxpayer, including costs related to the training of employees, to scholarship programs, and to the providing of increased compensation to employees with higher levels of child care training, or

(iii)

under a contract with a qualified child care facility to provide child care services to employees of the taxpayer, or under a contract with an intermediate entity that contracts with one or more qualified child care facilities to provide such child care services.

(B)

Fair market value

(2)

Qualified child care facility

(A)

In general

The term “qualified child care facility” means a facility—

(i)

the principal use of which is to provide child care assistance, and

(ii)

which meets the requirements of all applicable laws and regulations of the State or local government in which it is located, including the licensing of the facility as a child care facility.

Clause (i) shall not apply to a facility which is the principal residence (within the meaning of section 121) of the operator of the facility.

(B)

Special rules with respect to a taxpayer

A facility shall not be treated as a qualified child care facility with respect to a taxpayer unless—

(i)

enrollment in the facility is open to employees of the taxpayer during the taxable year,

(ii)

if the facility is the principal trade or business of the taxpayer, at least 30 percent of the enrollees of such facility are dependents of employees of the taxpayer, and

(iii)

the use of such facility (or the eligibility to use such facility) does not discriminate in favor of employees of the taxpayer who are highly compensated employees (within the meaning of section 414(q)).

(C)

Treatment of jointly owned or operated child care facility

(3)

Qualified child care resource and referral expenditure

(A)

In general

(B)

Nondiscrimination

(4)

Eligible small business

The term “eligible small business” means a business that meets the gross receipts test of section 448(c), determined—

(A)

by substituting “5-taxable-year” for “3-taxable-year” in paragraph (1) thereof, and

(B)

by substituting “5-year” for “3-year” in paragraph (3)(A) thereof.

(d)

Recapture of acquisition and construction credit

(1)

In general

If, as of the close of any taxable year, there is a recapture event with respect to any qualified child care facility of the taxpayer, then the tax of the taxpayer under this chapter for such taxable year shall be increased by an amount equal to the product of—

(A)

the applicable recapture percentage, and

(B)

the aggregate decrease in the credits allowed under section 38 for all prior taxable years which would have resulted if the qualified child care expenditures of the taxpayer described in subsection (c)(1)(A) with respect to such facility had been zero.

(2)

Applicable recapture percentage

(A)

In general

(B)

Years

(3)

Recapture event defined

For purposes of this subsection, the term “recapture event” means—

(A)

Cessation of operation

(B)

Change in ownership

(i)

In general

(ii)

Agreement to assume recapture liability

(4)

Special rules

(A)

Tax benefit rule

(B)

No credits against tax

(C)

No recapture by reason of casualty loss

(e)

Special rules

For purposes of this section—

(1)

Aggregation rules

(2)

Pass-thru in the case of estates and trusts

(3)

Allocation in the case of partnerships

(f)

No double benefit

(1)

Reduction in basis

For purposes of this subtitle—

(A)

In general

(B)

Certain dispositions

(2)

Other deductions and credits

(g)

Regulations and guidance

(Added Pub. L. 107–16, title II, § 205(a), June 7, 2001, 115 Stat. 50; amended Pub. L. 107–147, title IV, § 411(d)(1), Mar. 9, 2002, 116 Stat. 46; Pub. L. 119–21, title VII, § 70401(a)–(f), July 4, 2025, 139 Stat. 212, 213.)

cite as: 26 USC 45F