South Dakota Child Care Tax Incentives
Current for 2026 Tax Year • Last Updated: January 24, 2026
Federal 45F + GOED Coalition Grants = The "Coalition Capital" of the 45F World!
The 2026 South Dakota Strategy
South Dakota has no state income tax, so there's no state tax credit. But the state has poured millions into community-based grants, making it the perfect place for the "45F Coalition" model!
Claim a tax credit for 40% (Large Business) or 50% (Small Business) of qualified child care expenses, up to $600,000 annually.
Partner with your local EDC to access state grant funding for construction and expansion. Don't go it alone!
🏛️ No State Tax = No State Credit (But That's OK!)
South Dakota has no corporate income tax, so you'll never see a "State Tax Credit" line item. Instead, the state uses GOED (Governor's Office of Economic Development) and DSS grants to fund child care infrastructure directly.
🤝 The "Coalition Model" - South Dakota's Secret Weapon
South Dakota officially encourages businesses to group together to solve child care. Here's how it works:
- Partner with your local EDC (Economic Development Corporation)
- You contribute capital (claiming the Federal 45F credit on your contribution)
- The EDC applies for state grants to build the facility
- The community gets a new child care center that serves your employees!
🧪 Tri-Share Style Pilots Emerging
Several communities (like Brookings and Sioux Falls) are experimenting with "Tri-Share" style funding: Employer / Employee / Community. Watch for expansion!
🏔️ SD Success Story: Monument Health (Rapid City)
Healthcare + YMCA Partnership = Child Care Desert Solved
The Monument Health Model
- The Challenge: Shortage of healthcare workers AND a "child care desert" for those workers' families
- The Solution: Partnered with the YMCA of Rapid City to create dedicated child care capacity
- The "Hospital" Strategy: Secured priority spots and backup care options so nurses and doctors could cover shifts without worrying about sudden school closures
- The Tax Benefit: Monument Health uses the Federal 45F Credit to offset the "Operating Costs" of this exclusive contract
💡 The Lesson
"You don't need to run the daycare yourself. Monument Health proves that partnering with a trusted non-profit (like the YMCA) is the fastest way to add capacity. You can use the Federal 45F Credit to offset the 'Operating Costs' of this exclusive contract."
🏘️ Small Biz Hero: Lake Area Improvement Corp (Madison)
The Ultimate 45F Coalition Example for Small Businesses
The LAIC Model
- The Group: Lake Area Improvement Corporation (LAIC) in Madison, SD
- The Strategy: Pooled resources from multiple small employers to build a community center
- The Result: A new child care facility that serves the entire business community
- The Tax Win: Each contributing employer claims their share of the Federal 45F credit
💡 The Small Business Pitch
"Can't afford to build a center on your own? Neither could anyone else in Madison. But when 10 small businesses each contributed $25,000, they built a $500,000 facility. Each business claimed the 45F credit on their $25,000 contribution. Coalition math works."
South Dakota-Specific Example: The "Coalition Build" Model
Five small businesses in Sioux Falls form a coalition to build a shared child care facility.
| Funding Source | Amount | 45F Credit (50%) | Net Cost |
|---|---|---|---|
| Business A Contribution | $50,000 | $25,000 | $25,000 |
| Business B Contribution | $50,000 | $25,000 | $25,000 |
| Business C Contribution | $50,000 | $25,000 | $25,000 |
| Business D Contribution | $50,000 | $25,000 | $25,000 |
| Business E Contribution | $50,000 | $25,000 | $25,000 |
| GOED Community Grant | $250,000 | N/A (Grant) | $0 |
| Total Facility Cost | $500,000 | $125,000 | $125,000 |
💰 The South Dakota Coalition Advantage
Total Facility: $500,000 | GOED Grant: $250,000 | Business Contributions: $250,000 | 45F Credits: $125,000 | Net Cost (All 5 Businesses): $125,000
Each business pays just $25,000 for a share of a $500,000 facility!
South Dakota Compliance & Resources
🏛️ GOED Grants
Governor's Office of Economic Development deploys community-based child care grants.
SD GOED →📋 Licensing Requirements
All child care facilities must be licensed by the SD Department of Social Services (DSS).
SD DSS Child Care →📄 Federal Form 8882
File IRS Form 8882 to claim the federal Section 45F credit on your contributions.
IRS Form 8882 →🤝 Find Your EDC
Connect with your local Economic Development Corporation to explore coalition opportunities.
SD Economic Development →South Dakota Child Care Landscape
Key South Dakota Markets
Employers in these South Dakota markets are leveraging the Coalition + 45F model:
- Sioux Falls – Healthcare, finance, retail, manufacturing
- Rapid City – Healthcare (Monument Health), tourism, defense
- Aberdeen – Healthcare, education, agriculture
- Brookings – Education (SDSU), manufacturing, Tri-Share pilot
- Madison – Small business coalition (LAIC model)
- Watertown – Manufacturing, healthcare, agriculture
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.
Coalition Contributions
Contributions to EDC-led child care projects qualify for 45F. Pool resources with other employers!
Non-Profit Partnerships
Contracts with YMCAs, churches, and other non-profits to reserve spots for your employees.
Child Care Marketplace Platforms
Technology platforms that connect employees with vetted, licensed child care providers.
Direct Stipend Programs
Monthly stipends to employees for licensed care qualify for the federal credit.
South Dakota Section 45F FAQ
Ready to Calculate Your South Dakota Savings?
Use our calculator to estimate your potential federal 45F savings, then connect with your local EDC to explore coalition opportunities. Don't go it alone—coalition math works!