Arkansas Child Care Tax Incentives
Current for 2026 Tax Year • Last Updated: January 24, 2026
Strategic 45F stacking for Arkansas employers and Small Business Coalitions
The 2026 Arkansas Reality Check
Arkansas employers should focus primarily on the federal Section 45F credit. The state-level credits are extremely limited and only apply to employers who build and operate their own on-site facilities.
⚠️ Critical Update: HB1435 Failed (May 2025)
If you've heard about a $500,000 employer tax credit or 50% state matching credit for Arkansas, that legislation (HB1435) died in committee on May 5, 2025. It was never enacted.
Arkansas does NOT have a modern percentage-based reimbursement for general employers like Alabama or Georgia do.
Claim a tax credit for 40% (Large Business) or 50% (Small Business) of qualified child care expenses, up to $600,000 annually. This is your primary benefit.
Only applies if you build and operate your own facility. See details below.
📜 Current Arkansas Law: The "Daycare Facility Act" (Act 820 of 1993)
Arkansas still relies on the old 1993 law, which offers only:
- 3.9% Salary Credit: A credit equal to 3.9% of the annual salaries of employees who work exclusively in your on-site child care facility.
- $5,000 First-Year Credit: A one-time credit for the first year you open a facility.
- Sales Tax Refund: Refund on sales tax paid for construction materials and furnishings for a new center.
🚫 No "Stacking" for Most Employers
If you are NOT building your own on-site facility, there is effectively $0 in state tax credits for you.
Buying spots at a local child care center, contracting with a third-party provider, or paying for employee child care subsidies generates no Arkansas state tax credit under current law.
Your strategy: Focus entirely on maximizing the federal 45F credit (40-50% of qualified expenses).
💡 Arkansas Strategy
Be realistic about state-level savings. Unless you're building an on-site facility, the federal 45F credit is your only significant tax benefit. The good news: the 2026 federal credit is substantial (40-50% of expenses, up to $600K cap).
Arkansas-Specific Examples
✅ Scenario A: On-Site Facility (State Credit Applies)
A manufacturing company in Little Rock with 250 employees establishes an on-site child care facility for its workers.
| Expense Category | Annual Investment | Federal 45F Credit (40%) + State Credit |
|---|---|---|
| Facility Start-up Costs (Year 1) | $150,000 | $60,000 (Federal) + $5,000 (State one-time) |
| Child Care Staff Salaries | $100,000 | $40,000 (Federal) + $3,900 (State 3.9%) |
| Resource & Referral | $10,000 | $1,000 (Federal) + $0 (State) |
| Total (Year 1) | $260,000 | $109,900 |
🏞️ On-Site Facility Advantage
If you build and operate your own facility, you can claim the small state credits ($5,000 first year + 3.9% of child care staff salaries). The federal 45F credit provides the bulk of the savings.
❌ Scenario B: Third-Party Provider (NO State Credit)
A tech company in Bentonville with 100 employees contracts with a local licensed child care center to provide subsidized spots for employees.
| Expense Category | Annual Investment | Tax Credits |
|---|---|---|
| Child Care Subsidies (Third-Party) | $120,000 | $60,000 (Federal 50%) + $0 (State) |
| Resource & Referral Fees | $8,000 | $800 (Federal 10%) + $0 (State) |
| Total | $128,000 | $60,800 (Federal Only) |
🚫 Reality for Most Arkansas Employers
If you're contracting with existing providers, paying for employee subsidies, or using a benefits platform—you get $0 in Arkansas state credits. The federal 45F credit ($60,800 in this example) is still valuable, but don't expect state "stacking."
Arkansas Compliance & Resources
📋 Licensing Requirements
All child care facilities must be licensed by the Arkansas Department of Human Services, Division of Child Care and Early Childhood Education. This applies to both center-based and family child care homes.
AR Division of Child Care →💼 Arkansas Tax Credits
Arkansas offers specific tax credits for employer-provided child care, including a credit for the salaries of child care staff and a first-year credit for establishing a new facility.
Arkansas EDC Incentives →📄 Required Federal Form
File IRS Form 8882 with your federal business tax return to claim the Section 45F credit. Consult with a tax professional regarding Arkansas's tax laws and how they interact with federal tax credits.
IRS Form 8882 →🤝 Local Support
Employers in Arkansas can partner with local Resource & Referral agencies to locate and vet qualified providers. These agencies can provide valuable assistance in navigating the child care landscape.
AR Child Care Referral →Arkansas Child Care Landscape
Little Rock, Fort Smith, Fayetteville, Springdale, Jonesboro, Rogers, Conway, North Little Rock, Bentonville, Pine Bluff
Child Care Deserts
Many areas in Arkansas are considered child care deserts, with a significant lack of available, affordable, and quality child care options for working families.
Annual Cost
The average annual cost of infant care in Arkansas is approximately $6,800, which is a significant portion of the median household income in the state.
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: Arkansas
HB1435 died in committee on May 5, 2025. This bill would have created a modern percentage-based credit (similar to Alabama or Georgia), but it was never enacted. If you've heard about a $500,000 cap or 50% state credit for Arkansas, that legislation failed.
Arkansas still uses the Daycare Facility Act (Act 820 of 1993), which offers only: (1) a 3.9% credit on salaries of employees who work exclusively in your on-site child care facility, (2) a one-time $5,000 credit for the first year you open a facility, and (3) a sales tax refund on construction materials for a new center. These only apply if you build and operate your own facility.
No. Under current Arkansas law, buying spots at a local center, contracting with a third-party provider, or paying employee child care subsidies generates $0 in Arkansas state tax credits. The state credits only apply to employers who build and operate their own on-site facilities. However, you can still claim the federal 45F credit (40-50%) for these expenses.
No. Unlike Michigan (and the failed attempt in Arizona), Arkansas has no active "Tri-Share" (cost-splitting) pilot program for 2026. There is no state program where the government shares child care costs with employers and employees.
Focus on maximizing the federal Section 45F credit, which provides 40-50% back on qualified child care expenses (up to $600K cap). Don't expect meaningful state "stacking" unless you're building your own on-site facility. The federal credit alone is substantial and makes child care benefits financially viable.
The Arkansas Department of Human Services maintains a list of licensed child care providers. Employers can also work with Child Care Aware of Arkansas for assistance in finding and vetting providers.
Calculate Your Potential 2026 Credit
Use our free, updated Section 45F tax credit calculator to estimate your potential savings. It takes less than a minute and requires no personal information.
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