Illinois Child Care Tax Incentives
Current for 2026 Tax Year • Last Updated: January 24, 2026
Strategic 45F stacking for Illinois employers and Small Business Coalitions
The 2026 Illinois "Stack"
Illinois employers can achieve a "Double Win" by combining the expanded federal Section 45F credit with the state's Employee Child Care Tax Credit (35 ILCS 5/210.5).
⚠️ Important: Don't Confuse the Programs!
The "Employee Child Care Tax Credit" (administered by the IL Dept. of Revenue) is different from the "Child Care Assistance Program" (CCAP), which is a welfare subsidy for low-income families. Make sure you're applying for the tax credit, not the family subsidy!
Claim a tax credit for 40% (Large Business) or 50% (Small Business) of qualified child care expenses, up to $600,000 annually.
A state credit of 30% for startup costs and 5% of annual operating expenses for employer-provided child care (35 ILCS 5/210.5).
🏛️ Smart Start Illinois: Your Safety Net
Illinois is unique because it isn't just giving tax credits—it's actively stabilizing the providers you need to contract with. Under "Smart Start Illinois," the state issues Workforce Grants to raise child care worker wages. Your investment is safer in Illinois because Smart Start grants are stabilizing the workforce, meaning the center you partner with is less likely to close due to staffing shortages.
🤝 Coalition-Friendly: Joint Operation Allowed
The Illinois statute (IITA 210.5) explicitly allows taxpayers to "join in a partnership" with other corporations to provide child care facilities. This is the legal basis for Small Business Coalitions—giving legal weight to pooling resources with neighboring businesses.
📜 Check for 2026 Legislative Updates (SB 2277)
There was a push in the 2025 session (SB 2277) to increase these rates to 50% / 20%. The rates shown here (30% / 5%) are the conservative, currently-enacted rates. Check with the IL Department of Revenue for any late-session updates.
💡 Illinois Strategy
The Illinois Employee Child Care Tax Credit provides a valuable incentive for businesses to invest in child care. The 30% credit on startup costs is a significant benefit for new programs, while the 5% credit on annual expenses provides ongoing support. Combine with Smart Start-stabilized providers for maximum reliability.
Illinois-Specific Example: The "Manufacturing Hub" Scenario
A manufacturing firm in a Chicago suburb with 250 employees establishes an on-site child care center to support its workforce.
| Expense Category | Annual Investment | Federal 45F Credit (50%) | Illinois State Credit |
|---|---|---|---|
| Startup Costs (Renovation/Equipment) | $150,000 | $75,000 | $45,000 (30%) |
| Annual Operating Costs | $200,000 | $100,000 | $10,000 (5%) |
| Total | $350,000 | $175,000 | $55,000 |
The Illinois Advantage
By stacking the federal and state credits, the manufacturer's first-year net cost is significantly reduced. The combined tax credits total $230,000, lowering the effective cost of a $350,000 investment to just $120,000. This powerful incentive helps Illinois businesses attract and retain talent in a competitive market.
Illinois Compliance & Resources
📋 Licensing Requirements
All child care facilities must be licensed by the Illinois Department of Children and Family Services (DCFS). This applies to both center-based and family child care homes.
IL DCFS Day Care Licensing →💼 Illinois Employee Child Care Assistance Program
The state credit is detailed in Title 86, Section 100.2195 of the Illinois Administrative Code. Businesses should consult with a tax professional to ensure proper application.
IL Admin. Code § 100.2195 →📄 Required Federal Form
File IRS Form 8882 with your federal business tax return to claim the Section 45F credit. Ensure you are using the latest version of the form for the 2026 tax year.
IRS Form 8882 →🤝 Local Support
Employers in Illinois can partner with local Child Care Resource & Referral (CCR&R) agencies to find licensed providers and get support for their child care programs.
INCCRRA Network →Illinois Child Care Landscape
Why Illinois Employers Are Investing in Child Care
With a robust state tax credit and a high percentage of working families, Illinois presents a prime opportunity for employers to leverage child care benefits. The state's high cost of care makes employer support a critical tool for attracting and retaining a skilled workforce.
🏆 The Abbott Model: Illinois Gold Standard
Look at Abbott in Lake County (Green Oaks): Their world-class "Early Discoveries" on-site center is one of the best examples of corporate child care in the nation. This massive facility has been a critical retention tool for decades, proving that child care is a strategic asset for retaining top scientific and manufacturing talent. Abbott's model demonstrates what's possible when employers commit to comprehensive child care solutions.
Employers in these major Illinois metros are leading the way in child care benefits:
- Chicago – Finance, tech, and professional services
- Aurora – Manufacturing and healthcare
- Joliet – Logistics and distribution
- Naperville – Technology and professional services
- Rockford – Aerospace and manufacturing
- Springfield – Government and healthcare
- Peoria – Manufacturing and healthcare
- Champaign-Urbana – Education and technology
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.
Illinois Section 45F FAQ
Ready to Calculate Your Illinois Savings?
Use our calculator to estimate your federal Section 45F credit. Select "Illinois" in the state dropdown to see state-specific guidance.