Start with the published 2026 framework
For amounts paid or incurred after December 31, 2025, Section 45F generally equals 40% of qualified child care expenditures, 50% for an eligible small business, plus 10% of qualified child care resource-and-referral expenditures. The total annual credit is capped at $500,000, or $600,000 for an eligible small business. The statutory cap is indexed for taxable years beginning after 2026.
Eligible-small-business status
For this credit, an eligible small business uses the Section 448(c) gross-receipts test with a five-taxable-year substitution. The IRS says that, generally for taxable years beginning in 2026, a corporation or partnership meets the test if its preceding five-year average annual gross receipts do not exceed $32 million. Confirm aggregation and entity-specific treatment with a tax advisor.
Qualified child care facility checklist
Qualified expenditure paths
| Path | What the statute covers | What to retain |
|---|---|---|
| Facility capital costs | Qualifying property acquisition, construction, rehabilitation, or expansion, subject to the statutory conditions. | Invoices, property records, depreciation / amortization analysis, facility evidence. |
| Facility operating costs | Operating a qualified facility, including certain training, scholarship, and higher-training compensation costs. | Operating records, payroll / program records, service documentation. |
| Direct facility contract | Contract with a qualified child care facility to provide child care services to employees. | Signed contract, facility qualification evidence, invoices, employee-use records. |
| Intermediate-entity contract | For post-2025 amounts, a contract with an intermediate entity that contracts with one or more qualified facilities. | Full contract chain, facility qualification evidence, invoices, allocation and service records. |
| Resource and referral | Contracted child care resource-and-referral services; a separate 10% category with its own nondiscrimination rule. | Service contract, invoices, employee eligibility / access records. |
Limits that belong in every review
Qualified child care expenditures exclude amounts above the fair market value of care. For facility acquisition, construction, rehabilitation, or expansion expenditures, the facility’s basis is reduced by the related credit. A taxpayer cannot claim another deduction or credit for the portion of expenditures used to determine the Section 45F credit.
Facility-related credits can be subject to recapture if the facility stops operating as qualified or there is an ownership change before the 10th tax year after it is placed in service. A written buyer assumption of recapture liability is a statutory exception to an ownership-transfer recapture event.
Joint arrangements
A facility does not fail to qualify merely because it is jointly owned or operated by the taxpayer and other persons. This permission does not create an automatic shared 50% credit. Each taxpayer should determine its own qualifying costs, allocated share, eligible-small-business status, cap, and tax use.