Arizona Child Care Tax Incentives
Current for 2026 Tax Year • Last Updated: January 24, 2026
Leveraging the Federal 45F Credit for Arizona Employers
The 2026 Arizona "Stack"
While Arizona does not currently offer a state-level employer child care tax credit, businesses can still achieve significant savings through the powerful federal Section 45F credit.
Claim a tax credit for 40% (Large Business) or 50% (Small Business) of qualified child care expenses, up to $600,000 annually.
Arizona does not currently have a state-specific employer child care tax credit. Focus on maximizing the federal benefit.
💡 Arizona Strategy
For Arizona businesses, the primary strategy is to maximize the federal Section 45F credit. This credit alone provides a substantial financial incentive for supporting employees' child care needs. While Arizona lacks a state credit, there are important local programs and policy developments to be aware of.
💡 Local Insight: The "Tri-Share" Proposal
You may have heard of a proposed program where the State, Employer, and Employee split child care costs 33/33/33. This "Tri-Share" model (originally pioneered in Michigan) was a priority for Governor Katie Hobbs and was included in executive budget requests.
What Happened: The proposal was cut from the final budget during negotiations in the 2024 and 2025 legislative sessions due to the state's budget deficit.
Status (2026): As of January 2026, this program is not active, but it remains a topic of legislative discussion. We will update this guide if funding is restored.
💡 The Employee Subsidy Option (Zero Cost to You)
While there is no tax credit for employers, your lower-income employees may qualify for DES Child Care Assistance. Arizona has specific subsidies for low-income workers through the Department of Economic Security.
Employer Tip: Helping your staff navigate the DES eligibility process is a zero-cost way to improve retention. You can't claim a credit for this, but promoting it as a benefit shows you care about your workforce.
DES Child Care Assistance Info →⏳ Note: Child Care Stabilization Grants (Expired)
If you heard about "free money" for child care partnerships, you may be thinking of the Child Care Stabilization Grants funded by federal ARPA dollars. These grants expired in September 2024. While some employers utilized these to partner with providers, this funding is no longer available.
Arizona-Specific Example: The "Hospitality Group" Scenario
A hospitality group in Phoenix with 150 employees (a Small Business) partners with a licensed local child care center to offer subsidized care for its employees.
| Expense Category | Annual Investment | Federal 45F Credit (50%) |
|---|---|---|
| Child Care Subsidies | $120,000 | $60,000 |
| Referral Service Fees | $10,000 | $1,000 (10% rate) |
| Total | $130,000 | $61,000 |
☀️ The Arizona Advantage
Even without a state credit, the federal 45F credit provides a $61,000 tax credit, significantly reducing the net cost of the child care benefit. This powerful incentive helps Arizona businesses attract and retain talent in a competitive market by making child care more affordable for their workforce.
Arizona Compliance & Resources
📋 Licensing Requirements
Child care facilities in Arizona must be licensed by the Arizona Department of Economic Security (DES), Division of Child Care. This ensures programs meet state health and safety standards.
AZ Division of Child Care →📂 State Business Resources
While a state-specific child care credit is not available, the Arizona Commerce Authority (ACA) offers various programs and incentives to support business growth and workforce development in the state.
Arizona Commerce Authority →📄 Required Federal Form
File IRS Form 8882 with your federal business tax return to claim the Section 45F credit. Consult with a tax professional for guidance on your specific situation.
IRS Form 8882 →🤝 Local Support
Arizona employers can connect with Child & Family Resources, a non-profit that provides resource and referral services to help businesses and families find quality child care solutions.
Child & Family Resources →Arizona Child Care Landscape
The average cost of infant care in Arizona is nearly $12,000 per year, a significant expense for working families.
A majority of young children in Arizona live in households where all parents are in the workforce.
Arizona has a network of over 2,200 licensed child care providers across the state.
Major population centers like Phoenix, Tucson, and Mesa are focal points of the demand for accessible and quality child care as they continue to grow.
Qualified Intermediary Platforms for 45F
Under the One Big Beautiful Bill Act (OBBBA) 2026 updates, employers can now claim Section 45F credits for expenses paid to qualified intermediary service providers. These platforms help connect employees with licensed child care and manage benefits administration.
Child Care Marketplace Platforms
Technology platforms that connect employees with vetted, licensed child care providers. Expenses for subscription fees, matching services, and provider network access qualify under 45F.
Benefits Administration Services
Third-party administrators that manage employer child care benefits, including enrollment, provider payments, and compliance reporting. Administrative fees are now 45F-eligible.
Resource & Referral Agencies
Community-based organizations that help employees find quality child care. Contracts with R&R agencies qualify for the 10% referral credit component.
Child Care Subsidy Programs
Employer-funded subsidy programs that offset employee child care costs. Direct subsidies to employees for licensed care are fully eligible for the 40-50% credit.
Frequently Asked Questions (Arizona)
Does Arizona have a state-level child care tax credit for employers?
No, Arizona does not currently offer a state-specific tax credit for employer-provided child care. The primary incentive for Arizona businesses is the federal Section 45F tax credit.
What are "qualified child care expenditures" in Arizona?
In Arizona, qualified expenses under Section 45F include costs to build, operate, or expand a child care facility; contract with a licensed provider; or provide resources and referral services. The provider must be licensed by the Arizona Department of Economic Security (DES).
Can a small business in Arizona benefit from Section 45F?
Yes. The 2026 update to Section 45F provides a 50% credit rate for small businesses (fewer than 250 employees or less than $25 million in revenue). This makes it a powerful tool for small businesses in Phoenix, Tucson, and other Arizona cities to compete for talent.
Since there is no state credit, what is the main benefit for an Arizona employer?
The main benefit is a direct reduction of your federal tax liability. A dollar-for-dollar credit is much more valuable than a deduction. By using the 45F credit, an Arizona company can significantly lower the net cost of providing a critical benefit that helps attract and retain employees with families.
What happened to Arizona's "Tri-Share" child care program?
The "Tri-Share" model (where State, Employer, and Employee each pay 33% of child care costs) was a priority for Governor Katie Hobbs and was included in executive budget requests. However, it was cut from the final budget in both 2024 and 2025 due to the state's budget deficit. As of 2026, this program is not active, but it remains a topic of legislative discussion.
Can my employees get help with child care costs in Arizona?
Yes! Lower-income employees may qualify for DES Child Care Assistance through the Arizona Department of Economic Security. While employers can't claim a credit for this, helping your staff navigate the DES eligibility process is a zero-cost way to improve retention and show you care about your workforce.
What happened to the Child Care Stabilization Grants?
The Child Care Stabilization Grants, funded by federal ARPA dollars, expired in September 2024. While some Arizona employers utilized these grants to partner with providers, this funding is no longer available. The federal 45F credit remains the primary incentive for employers.
Calculate Your Potential 2026 Credit
Use our interactive calculator to estimate your federal tax credit based on your specific expenses.
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