Section 45F: What Employers Need to Know about the Expansion of Federal Tax Credits for Child Care

The recently passed One Big Beautiful Bill Act (OBBBA) included a notable expansion of the federal Employer-Provided Child Care Tax Credit, known as Section 45. 

For years, the Employer-Provided Child Care Tax Credit has been an underutilized resource, designed to help employers offset the costs of supporting working parents. Recent updates, however, expand its benefits and raise contribution caps—making Section 45F more accessible to businesses of every size. For small businesses in particular, which employ nearly half of the private-sector workforce, this is a significant opportunity. The new regulations acknowledge a simple truth: child care is both hard to find and increasingly unaffordable. By leveraging Section 45F, employers can play a direct role in connecting their employees to quality child care—without absorbing an outsized financial burden.

What Changed Under Section 45F

Prior to the passage of the new rule, Section 45F allowed employers to claim a tax credit for a portion of the costs of providing child care benefits either by building on-site centers or contracting with local providers. Moreover, the credit was capped at $150,000 per year and covered only 25% of eligible expenses. These regulations were particularly limiting to small businesses that do not have the resources to build their own childcare centers or contract with a licensed provider whose costs would exceed the cap.

The expansion under OBBBA makes three major changes:

• Higher credit percentage: Employers can now claim 40% of qualified child care expenses (50% for eligible small businesses).
  
  
• Bigger annual cap: The maximum credit jumps from $150,000 to $500,000 ($600,000 for small businesses).
  
  
• More flexibility: The law makes it easier to work with third-party child care providers or intermediaries, giving employers more options than just building their own center or partnering with traditional, large child care centers. This is key for small businesses to be able to take advantage of the tax credit.

What This Means for Employers

For employers, this is more than just a tax break — it’s a recruitment, retention, and productivity tool. By utilizing these updates, employers can:

• Attract and retain talent. Child care benefits are among the most sought-after perks, especially for working parents navigating rising costs. One in five U.S. workers have left a job because their employer did not provide adequate child care benefits and over 70% of working parents said they’d choose to work for an employer that offers childcare benefits over one that doesn’t. Conversely, one in five U.S. workers have left a job because their employer did not provide adequate child care benefits.
• Lower turnover and absenteeism. When employees have reliable child care, they’re able to consistently engage in work. 
• Stretch employer dollars further. With the expanded credit, a significant share of employers’ investment in child care benefits can come back at tax time.
• Help employees find childcare they feel great about. Small and large businesses alike may now more easily contract with third-party child care providers, including trusted, licensed home-based programs in the community. These smaller care centers can offer more individualized attention for children, more flexible schedules and, therefore, more security for parents.
  
  

How Wonderschool Can Help

At Wonderschool, we’re on a mission to ensure that every family has access to high-quality early care 5 minutes from home, no matter where they live. The expansion of Section 45F opens the door for more intentional collaboration between employers and providers.

Wonderschool can support these connections by: 

• Working alongside employers to identify available and affordable  child care providers;
• Helping to solidify the partnership between employer and provider by structuring benefits that qualify under Section 45F;
• Equipping providers with the tools and network to tap into new streams of support that will contribute to the sustainability of their business.

Additionally, as more states embrace Tri-Share models, which establish collaboration across states, employers, and employees in funding childcare, the expanded flexibility from Section 45F could present an opportunity to rethink how we support working families in America. Employers and child care providers have always been critical partners in helping children thrive and parents succeed. With this new investment, those partnerships can grow stronger than ever.

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