Why the Employer-Provided Childcare Credit Is Smart for Your Business

As a business leader, you’re constantly exploring new ways to support your workforce, stand out in a competitive job market, and manage your bottom line. Among the many options available, one powerful but often overlooked tool is the Employer-Provided Childcare Credit. This federal tax incentive not only strengthens your employee benefits package, but also provides meaningful savings that can fuel future growth.

But how can you make the most of credits like this to build a loyal, productive workforce and manage your tax liability at the same time?

What is the Employer-Provided Childcare Credit?

The Employer-Provided Childcare Credit is a federal tax incentive designed to encourage businesses to invest in childcare support for their employees. Eligible businesses can claim up to 25% of qualified childcare facility expenditures, along with an additional 10% of resource and referral service expenses, for a total maximum credit of $150,000 per year. The credit offers potential tax savings for companies who choose to invest in childcare support for their employees.

The credit is part of the general business credit and includes carryback and carryforward provisions. If your business cannot utilize the full credit in the current tax year, the unused portion can be carried back one year or forward for up to 20 years, providing flexibility to maximize the benefit over time.

Why It’s Good Business

For many organizations, the value of the Employer-Sponsored Childcare Credit goes far beyond tax relief—it’s a strategic investment in your people and your organization’s future. By reducing your corporate income tax liability, the credit creates financial flexibility that can be reinvested into operations, talent development, or strategic growth initiatives.

Childcare benefits are especially impactful when it comes to recruiting and retaining top talent. In a competitive labor market, offering this kind of support sets your organization apart—demonstrating a genuine commitment to employee well-being and work-life balance. It also pays dividends in productivity: when employees have reliable childcare, they experience fewer disruptions, stay more focused, and are more engaged on the job.

Beyond the workplace, investing in childcare support strengthens your reputation as a family-friendly employer and a committed community partner, building loyalty internally while enhancing your brand and impact externally.

What Expenses Qualify?

To claim the Employer-Sponsored Childcare Credit, your business must incur qualified expenses that meet specific criteria. These may include:

• Facility Costs: Expenses related to acquiring, constructing, rehabilitating, or expanding a childcare facility that complies with regulatory standards
• Operating Expenses: Costs involved in running an on-site childcare facility for your employees
• Third-Party Payments: Payments made to licensed childcare providers on behalf of your employees
• Resource and Referral Services: Expenses associated with helping employees locate and access qualified childcare services

To claim the Employer-Sponsored Childcare Credit, businesses must complete and file IRS Form 8882, Credit for Employer-Provided Childcare Facilities and Services, along with their annual tax return for the year in which the qualified expenditures were made.

To qualify, all childcare facilities and services must comply with applicable state and local licensing requirements. Additionally, businesses must maintain thorough documentation to substantiate eligible expenses and demonstrate compliance—both of which are essential for receiving the full benefit of the credit.

Understanding how this credit interacts with other tax provisions is important. Businesses cannot claim a double benefit for the same expenditures. For instance, if the credit is applied to capital expenditures, the corresponding credit amount must be reduced based on the facility, and related deductions or credits must be adjusted accordingly.

Is This Credit Right for You?

Whether you’re planning to build an on-site childcare facility or support employees through partnerships with licensed providers, the Employer-Provided Childcare Credit offers a flexible and valuable way to invest in your workforce. However, successfully leveraging this credit requires more than good intentions—it involves meeting specific eligibility requirements, maintaining thorough documentation, and aligning with regulatory standards. Organizations should seek proper guidance when evaluating this opportunity to ensure compliance and maximize potential savings. With the right support, this credit can be a powerful tool for enhancing employee benefits and driving long-term value.

Take the Next Step

Supporting your team while reducing your tax burden is a win for everyone—but claiming the Employer-Provided Childcare Credit requires strategy and documentation. If you’re exploring new ways to enhance your employee benefits, contact your CRI advisor to discuss whether this credit is the right fit for your organization. We’re committed to your success and here to help you unlock its full value.