Iowa Child Care Tax Incentives
Current for 2026 Tax Year • Last Updated: January 24, 2026
Federal 45F Only + Iowa's New Grant Strategy
🚨 CRITICAL: Iowa State Tax Credit REPEALED
Senate File 657 (signed by Governor Reynolds, June 2025) explicitly repealed the Iowa Employer Child Care Tax Credit (Iowa Code § 237A.31) for tax years beginning on or after January 1, 2026.
What this means: The Iowa state credit ran only from 2023-2025. If you file for this credit in 2026, you will be rejected.
Iowa is now a "Federal Only" state for employer child care tax credits. The federal Section 45F credit still applies, but there is no state credit to stack.
The 2026 Iowa Reality
Iowa employers can still claim the powerful federal Section 45F credit. Governor Reynolds didn't abandon child care—she shifted the money from tax credits to direct grants.
Claim a tax credit for 40% (Large Business) or 50% (Small Business) of qualified child care expenses, up to $600,000 annually.
Direct cash grants (not tax credits) from Iowa Workforce Development and Iowa HHS. Better than credits—cash up-front rather than waiting for tax season!
💡 Iowa Strategy: Grants Are Better Than Credits
For many businesses, Iowa's shift to grants is actually better than the old tax credit. Grants provide cash up-front (or reimbursement) rather than waiting until tax season. Watch for application windows on IowaGrants.gov.
Iowa's New Grant Strategy
Governor Reynolds shifted child care funding from tax credits to direct grants. Here's how Iowa employers can access these programs.
💰 Child Care Business Incentive Grant
Iowa Workforce Development (IWD) and Iowa HHS issue direct grants to employers who expand child care slots.
- Cash up-front (or reimbursement) rather than waiting for tax season
- Watch for application windows on IowaGrants.gov
- Contact Iowa Workforce Development for current grant availability
🏫 The "Continuum of Care" Model
Governor Reynolds has poured millions into "Continuum of Care" grants that fund partnerships between private child care centers and school district pre-K programs.
The Employer Strategy: If you're building an on-site center, design it to partner with your local school district. This unlocks state grant money to cover the "Pre-K" portion of the day, lowering your costs significantly.
This is the smart play in Iowa—let the state subsidize the pre-K hours while you cover the rest.
Iowa-Specific Example: Federal 45F + Grant Strategy
A manufacturing company in Des Moines with 200 employees partners with a local child care provider and applies for Iowa grants.
| Expense Category | Annual Investment | Federal 45F Credit (50%) | Iowa Strategy |
|---|---|---|---|
| Child Care Facility Costs | $250,000 | $125,000 | Apply for Business Incentive Grant |
| Operating Partnership | $150,000 | $75,000 | Partner with school district (Continuum of Care) |
| Total | $400,000 | $200,000 | + Grant $$ (varies) |
🌽 The Iowa Advantage
While Iowa no longer offers a state tax credit, the combination of federal 45F credits plus Iowa's grant programs can still significantly reduce your child care investment. The key is to apply early for grants and consider the Continuum of Care partnership model.
Iowa Compliance & Resources
📋 Licensing Requirements
All child care facilities must be licensed by the Iowa Department of Health and Human Services (HHS). This ensures programs meet state health and safety standards.
Iowa HHS Child Care →💰 Iowa Grants Portal
Watch for Child Care Business Incentive Grant application windows. Grants are administered by Iowa Workforce Development and Iowa HHS.
IowaGrants.gov →📄 Required Federal Form
File IRS Form 8882 with your federal business tax return to claim the Section 45F credit. Maintain detailed records of all qualified expenditures.
IRS Form 8882 →🏢 Iowa Workforce Development
Contact IWD for information on current child care grant programs and employer incentives.
Iowa Workforce Development →Iowa Child Care Landscape
Why Iowa Employers Should Still Invest
Even without a state tax credit, Iowa employers have strong incentives to invest in child care. The federal 45F credit covers 40-50% of costs, and Iowa's grant programs can provide additional cash support. Plus, Iowa's tight labor market means child care benefits are a powerful recruitment and retention tool.
Employers in these major Iowa metros are leading the way in child care benefits:
- Des Moines-West Des Moines – Finance, insurance, tech
- Cedar Rapids – Manufacturing, healthcare
- Davenport-Quad Cities – Manufacturing, logistics
- Iowa City – Education, healthcare
- Sioux City – Agribusiness, manufacturing
- Waterloo-Cedar Falls – Manufacturing, education
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.
Iowa Section 45F FAQ
Ready to Calculate Your Iowa Savings?
Use our calculator to estimate your federal Section 45F credit. Remember: Iowa is now "Federal Only" for tax credits, but grants may provide additional support.