My spouse and I were lucky as parents. In 2005, I brought our infant daughter to work right after maternity leave, and she was my officemate until she could crawl into the hallway. A colleague did the same with her son the following year. Our employer, a small company with fewer than 25 employees, was willing to provide these unique accommodations. However, it could not offer formal child care services, nor did it take advantage of the Employer-Provided Child Care Credit (known as 45F, after its Internal Revenue Code section). This tax credit, enacted by Congress in 2001, allows employers to offset the costs of establishing and maintaining a child care facility. The 45F credit generally provides a bigger benefit to businesses than simply deducting child care expenses, which businesses can also do. Recently, Senators Tim Kaine (D-VA) and Katie Britt (R-AL) introduced the Child Care Affordability and Availability Act, which aims to expand 45F alongside other child care benefits.
Proposed Legislative Changes
The proposed legislation would increase the maximum 45F credit from $150,000 to $500,000 while also covering 50 percent of qualified child care expenses instead of the current 25 percent. For small businesses, the bill includes a maximum credit of $600,000 to encourage joint applications for those wishing to pool resources.
On paper, expanding 45F sounds like a win-win by increasing the supply of child care, reducing costs, and making it easier for parents to remain in the workforce. However, the uptake of the current incentive has been minimal. The Government Accountability Office (GAO) reported that in 2016, among the roughly 70,000 corporate income tax returns filed for general business credits, only a couple hundred claimed child care credits worth less than $20 million combined.
To date, 45F is not popular among businesses. Larger companies are more likely to provide on-site child care, but even then, take-up rates are low. According to the 2023 Best Place for Working Parents National Trends Report, only 11 percent of the companies surveyed offered on-site child care. This rate rises slightly to 16 percent for companies with more than 1,000 employees. In contrast, 90 percent of businesses in the education industry offered such facilities.
There are regulatory challenges involved. Establishing on-site child care requires navigating complex state and federal regulations. This process can be overwhelming, especially for small businesses without dedicated resources. These regulatory hurdles can discourage employers from establishing onsite child care, let alone taking advantage of the credit.
The 45F credit is also non-refundable, so businesses must have a tax liability large enough to be offset by the credit. Small businesses with tight profit margins are therefore less likely to benefit. And although businesses can carry forward the unused credit to future tax years, this feature does not provide immediate relief.
The 45F credit also can’t necessarily overcome consumer preferences. Not all employees prefer onsite or center-based child care. According to the US Census Bureau’s Household Pulse Survey conducted from September to December 2022, only 8.4 percent of respondents used a daycare center, while 21.8 percent relied on relatives for child care. The desire for flexibility and convenience often leads parents to seek alternatives outside the workplace.
Is Expanding 45F the Best Solution?
While the Kaine-Britt proposal offers larger financial incentives and facilitates joint applications for small businesses, increasing the credit’s value can’t change child care regulations. Nor can it change parental preferences for more diverse, lower-cost child care options.
Child care, especially center-based care, is expensive. According to the National Database of Child Care Prices, the median cost of child care in 2018 ranged from $4,810 ($5,357 in 2022 dollars) to $15,417 ($17,171 in 2022 dollars), depending on provider type, child age, and county population size. This represents between 8 percent and 19.3 percent of median family income.
And relying on employers for child care may not be the best solution for all families. Some suggest it shouldn’t be. Elliot Haspel argues in his 2024 report for the New America Foundation, “Employers are not a sustainable core solution for the problem of child care… Public or social goods are simply not delivered through the employer-employee relationship.”
While the Kaine-Britt proposal seeks to encourage and reward businesses to provide onsite child care, increasing the supply of child care might need solutions beyond the tax code.
Policymakers could explore more comprehensive strategies, like expanding public investment in child care infrastructure that supports diverse care models. That might create more sustainable and accessible child care for everybody—regardless of their occupation.
