Kentucky Child Care Tax Incentives
Current for 2026 Tax Year • Last Updated: January 24, 2026
Federal 45F Credit + ECCAP Cash Match (HB 499) = Powerful Combination
The 2026 Kentucky "Stack"
Kentucky does something different and better: Instead of a tax credit you wait for, the state offers a Cash Match via the Employee Child Care Assistance Partnership (HB 499).
🚀 The Kentucky "Cash Match" (ECCAP) – HB 499
Kentucky doesn't have a traditional tax credit. Instead, the state offers a Matching Grant that's often better than a tax credit because it improves cash flow immediately!
- How it works: You pay a subsidy to your employee's child care provider. The state matches your contribution (up to 100%) directly to the provider.
- The Benefit: It effectively doubles your benefit budget. If you pay $200/month, the provider receives $400/month (subject to employee income caps).
- Status: Active and Funded for 2026 ($2 million appropriated for FY 2026)
Claim a tax credit for 40% (Large Business) or 50% (Small Business) of qualified child care expenses, up to $600,000 annually.
State matches your contribution 50-100% based on employee income. Cash up-front, not a tax credit you wait for!
📝 The "Contract" Requirement
ECCAP isn't a tax form you file in April. It requires a three-way contract between the Employer, the Employee, and the Child Care Provider.
Apply via the kynect portal – this is the primary vehicle for state support.
⚠️ "All STARS" Requirement
The child care provider must be part of Kentucky's "All STARS" rating system. If you pay a non-rated provider, the state match is $0. Check provider ratings before committing!
💡 Kentucky Strategy: Think of it as "100% ROI"
Employers should treat ECCAP as a "100% ROI" on their contribution (up to the cap). If you contribute $100 to an employee's child care, the state may match it with another $100—effectively doubling the benefit. This is mathematically similar to a 100% tax credit, but with better cash flow!
Kentucky-Specific Example: The "Manufacturing Belt" Scenario
A manufacturing company in Lexington with 250 employees partners with a local licensed provider to offer subsidized child care to its workforce.
| Expense Category | Annual Investment | Federal 45F Credit (40%) |
|---|---|---|
| Employee Child Care Contributions | $100,000 | $40,000 |
| State ECCAP Match | ($100,000) | $0 |
| Admin & Referral Fees | $10,000 | $1,000 (10% rate) |
| Total | $110,000 | $41,000 |
🐴 The Kentucky Advantage
Through the Employee Child Care Assistance Partnership, the company’s contributions are matched by the state, effectively doubling the value of their investment and dramatically lowering the net cost of providing this critical benefit.
Kentucky Compliance & Resources
📋 Licensing Requirements
All child care facilities must be licensed by the Kentucky Cabinet for Health and Family Services. This applies to both center-based and family child care homes.
KY Division of Child Care →💼 Employee Child Care Assistance Partnership
The Employee Child Care Assistance Partnership (ECCAP) is a public-private partnership that matches employer contributions for child care expenses.
KY ECCAP →📄 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 Kentucky's "conformity" to federal tax law changes for the 2026 tax year.
IRS Form 8882 →🤝 Local Support
Employers in Kentucky can partner with local Child Care Aware agencies to locate and vet qualified providers. These agencies serve every county in Kentucky.
Child Care Aware of Kentucky →Kentucky Child Care Landscape
🚗 Manufacturing Giants Designed HB 499
Kentucky is a manufacturing powerhouse—home to Toyota Georgetown (the largest Toyota plant in North America) and Ford Louisville. These manufacturing giants helped design HB 499 and the ECCAP program. You can use the same "Matching" tool that the big auto plants use to retain your shift workers!
Why Kentucky Employers Are Investing in Child Care
Kentucky's competitive labor market—especially in manufacturing—makes child care benefits a powerful recruitment and retention tool. With the federal 45F credit covering up to 50% of costs plus the ECCAP cash match, Kentucky employers can offer meaningful benefits while dramatically reducing their net investment.
Employers in these major Kentucky metros are leading the way in child care benefits:
- Louisville (Jefferson County) – Ford Assembly, UPS Worldport, healthcare
- Lexington (Fayette County) – Healthcare, education, equine industry
- Georgetown (Scott County) – Toyota's largest North American plant
- Northern Kentucky (Kenton, Boone, Campbell) – Amazon Air Hub, manufacturing, logistics
- Bowling Green (Warren County) – GM Corvette Assembly, education, healthcare
- Owensboro (Daviess County) – Healthcare, manufacturing, energy
- Elizabethtown (Hardin County) – Healthcare, retail, manufacturing
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.
Kentucky Section 45F FAQ
Ready to Calculate Your Kentucky Savings?
Use our calculator to estimate your federal Section 45F credit. Select "Kentucky" in the state dropdown to see state-specific guidance.