Minnesota Child Care Tax Incentives
Current for 2026 Tax Year • Last Updated: January 24, 2026
Federal 45F + DEED Grants = The Minnesota Way!
📋 Minnesota: A "Grant State," NOT a "Tax Credit" State
Minnesota does NOT have a state employer child care tax credit. There is no line item on the M4 (Corporate Franchise Tax) return for this.
Minnesota's Strategy: "Economic Development" through DEED grants, not "Tax Relief" through credits.
⚠️ Don't Confuse Individual Credits with Employer Credits!
Minnesota has a generous Child and Dependent Care Credit (Schedule M1CD) for parents—refundable, up to $3,000 per child. But this is for individuals, not employers. An employer cannot claim this credit.
The 2026 Minnesota Strategy
Minnesota employers combine the federal Section 45F credit with DEED grants and community partnerships.
Claim a tax credit for 40% (Large Business) or 50% (Small Business) of qualified child care expenses, up to $600,000 annually.
$2.5M-$5M grant rounds. Partner with your city council or non-profit to apply!
💰 The DEED Child Care Economic Development Grant
The Department of Employment and Economic Development (DEED) runs competitive grant programs.
- Grant Rounds: Typically $2.5M - $5M per round
- Recipients: Often local governments or non-profits partnered with employers
- Strategy: Don't look for a tax form—look for an RFP from DEED!
- Action: Partner with your city council to apply for a grant to build a center that serves your employees
🌾 Rural Child Care Innovation Program (RCCIP)
First Children's Finance runs the RCCIP for "Greater Minnesota" (rural areas).
Employer Action: Sponsor a "Core Team" through RCCIP to find community-wide solutions. This is how rural Minnesota solves child care—through collaboration, not individual tax credits.
💡 Minnesota Strategy Summary
Minnesota employers should: (1) Claim the federal 45F credit for direct expenses, (2) Watch for DEED grant RFPs and partner with local government, (3) In rural areas, sponsor an RCCIP Core Team through First Children's Finance, and (4) Consider the "Hormel Model" for major capital investments.
🏭 Minnesota Success Story: Hormel's "Inspired Beginnings" Model
Hormel Foods (Austin, MN) is the gold standard for how a major employer solves rural child care.
The Project: They built a $5 million, 13,000-square-foot center called Inspired Beginnings Learning Academy to solve the rural child care shortage.
💡 Key Insight: Hormel didn't wait for a tax credit. They built the center to solve a recruitment crisis in rural Minnesota. They use the federal 45F credit to offset operation costs, but the construction was a strategic capital investment.
Minnesota-Specific Example: The "Hormel Model" Scenario
A food processing company in rural Minnesota replicates the Hormel approach.
| Investment Component | Amount | Funding Source |
|---|---|---|
| Facility Construction | $3,000,000 | Capital Investment + DEED Grant |
| DEED Grant (if awarded) | -$1,000,000 | State Grant |
| Annual Operating Costs | $400,000 | Employer |
| Federal 45F Credit (50% of $400k) | -$200,000 | Tax Credit |
| Net Annual Operating Cost | $200,000 | After 45F |
❄️ The Minnesota Advantage
By combining a DEED grant ($1M) with the federal 45F credit (50% of operating costs), a Minnesota employer can build a $3M facility for $2M and operate it for just $200k/year net. This is how you solve a recruitment crisis in Greater Minnesota!
Minnesota Compliance & Resources
💰 DEED Grants
Watch for Child Care Economic Development grant RFPs. Partner with local government or non-profits to apply.
MN DEED →🌾 First Children's Finance (RCCIP)
Rural employers: Sponsor a Core Team through the Rural Child Care Innovation Program.
First Children's Finance →📋 Licensing Requirements
Child care providers must be licensed by the Minnesota Department of Human Services (DHS).
MN Child Care Licensing →📄 Required Federal Form
File IRS Form 8882 with your federal business tax return to claim the Section 45F credit.
IRS Form 8882 →Minnesota Child Care Landscape
Competitive grants for child care economic development.
The "Inspired Beginnings" model for rural Minnesota.
Refundable credit for employees—not employers!
Why Minnesota Uses Grants Instead of Tax Credits
Minnesota is one of the few progressive states that relies on direct grants and individual credits rather than giving tax breaks to corporations. The philosophy is "Economic Development"—building infrastructure that serves entire communities, not just individual employers.
- Twin Cities Metro – Healthcare, tech, finance, retail (Target, UnitedHealth, Best Buy)
- Rochester – Mayo Clinic, healthcare, biotech
- Austin – Hormel Foods, food processing (the model!)
- Duluth – Healthcare, shipping, tourism
- Greater Minnesota (Rural) – Agriculture, food processing, manufacturing (RCCIP focus)
- St. Cloud – Manufacturing, healthcare, education
Qualified Intermediary Platforms for 45F
Minnesota employers can maximize the federal 45F credit through intermediary platforms and benefits administrators.
Child Care Marketplace Platforms
Technology platforms that connect employees with vetted, licensed providers. Platform fees qualify under 45F.
Benefits Administration Services
Third-party administrators that manage employer child care benefits. Administrative fees are 45F-eligible.
Resource & Referral Agencies
Minnesota CCR&Rs help employees find quality child care. Contracts qualify for the 10% referral credit.
Community Partnerships
Partner with local governments and non-profits to apply for DEED grants together.
Minnesota Section 45F FAQ
Ready to Calculate Your Minnesota Savings?
Use our calculator to estimate your federal Section 45F credit. Then explore DEED grants and RCCIP for community-wide solutions!