Tennessee Child Care Tax Incentives
Current for 2026 Tax Year • Last Updated: January 24, 2026
Grants to Build, Stipends to Recruit! Federal 45F + TDHS Establishment Grants = Maximum Impact
The 2026 Tennessee Strategy
Tennessee is a "Grant State" not a "Credit State." No F&E tax credit exists yet, but the TDHS Establishment Grant offers up-front cash to build child care capacity!
Claim a tax credit for 40% (Large Business) or 50% (Small Business) of qualified child care expenses, up to $600,000 annually.
Up to $1,000 per new slot created. Cash for furniture, playground, equipment. Max $100k+ per cycle!
🏗️ The "Build" Strategy: TDHS Establishment Grant
Want to build a center? Tennessee offers the Child Care Establishment Grant through TDHS and ChildcareTennessee (Community Foundation of Middle Tennessee).
- Benefit: Up to $1,000 per new slot created (max $100k+ depending on cycle)
- Covers: Equipment, supplies, furniture, playground for new centers or expansions
- Stack Strategy: Use federal 45F for construction/operations, use TN grant for equipment/supplies
💵 The "Buy" Strategy: Stipends + Tech (MATA Model)
Don't want to pour concrete? Use stipends + technology to solve the problem immediately!
- Stipend: Pay employees a monthly child care stipend ($200-$500/month)
- Tech Platform: Use TOOTRiS or similar to find providers with non-traditional hours
- 45F Credit: Claim 40-50% federal credit on your stipend costs
🔗 The "Smart Steps" Stack
For lower-income employees, stack your stipend with Tennessee's Smart Steps subsidy program:
You pay $200 (Stipend) + State pays the rest (Smart Steps) = Employee pays $0!
This is the ultimate stack for entry-level and hourly workers.
⚠️ Double-Dipping Warning: Grants vs. Credits
You cannot claim the Federal 45F credit on expenses that were reimbursed by a grant. You must strip grant-funded expenses from your 45F calculation. Example: Use the Grant for furniture ($50k), use 45F for construction ($200k).
🚌 TN Success Story: Memphis Area Transit Authority (MATA)
Solving the "3 AM Shift" Problem with Stipends + Tech
The MATA Model
- The Challenge: Severe shortage of bus drivers. Shifts often start at 3:00 AM—long before traditional daycares open.
- The Solution: Instead of building a center (which takes years), MATA launched a "Stipend + Tech" benefit in partnership with TOOTRiS.
- The Benefit: MATA pays the first $200/month of child care costs for eligible employees.
- The Tech: They use the TOOTRiS platform to give drivers real-time visibility into providers who offer non-traditional hours (nights/weekends).
- The Impact: This immediately became a primary recruiting tool for new drivers, signaling that MATA understands the reality of the job.
💡 The Lesson
"You don't need to pour concrete to solve the shift-work problem. MATA used an operating budget line item (recruitment) to fund a stipend, and technology to find the open spots. They claim the Federal 45F credit on the stipend costs."
📊 MATA Math
| Monthly Stipend per Driver: | $200 |
| Annual Cost (50 drivers): | $120,000 |
| Federal 45F Credit (50%): | -$60,000 |
| Net Cost to MATA: | $60,000 |
That's just $100/month per driver for a benefit that solves their biggest work-life challenge!
Tennessee-Specific Example: The "Build + Operate" Model
A Nashville manufacturer builds an on-site center using both the TDHS Grant and Federal 45F.
| Expense Category | Amount | Funding Source | Net Cost |
|---|---|---|---|
| Construction & Renovation | $200,000 | 45F Credit (50%): -$100,000 | $100,000 |
| Equipment & Furniture (50 slots) | $50,000 | TDHS Grant ($1k/slot): -$50,000 | $0 |
| Annual Operating Costs | $150,000 | 45F Credit (50%): -$75,000 | $75,000 |
| Year 1 Total | $400,000 | Credits/Grants: $225,000 | $175,000 |
💰 The Tennessee Advantage
Total Investment: $400,000 | TDHS Grant: $50,000 | 45F Credits: $175,000 | Net Cost: $175,000
That's 56% off your total investment by stacking Grant + Federal Credit!
Tennessee Compliance & Resources
🏗️ TDHS Establishment Grant
Up to $1,000 per new slot. Apply through ChildcareTennessee (Community Foundation of Middle Tennessee).
TDHS Child Care →📋 Licensing Requirements
All child care facilities must be licensed by the Tennessee Department of Human Services (TDHS).
TDHS Licensing →📄 Federal Form 8882
File IRS Form 8882 to claim the federal Section 45F credit on your child care expenses.
IRS Form 8882 →👶 Smart Steps Subsidy
Tennessee's child care subsidy for working parents. Stack with employer stipends for maximum impact.
Smart Steps →Tennessee Child Care Landscape
Key Tennessee Markets
Employers in these Tennessee markets are leveraging the Grant + 45F strategy:
- Nashville-Davidson – Healthcare, tech, hospitality, music industry
- Memphis – Logistics (FedEx), transit (MATA), healthcare
- Knoxville – Manufacturing, education (UT), healthcare
- Chattanooga – Manufacturing, tech, automotive
- Clarksville – Military (Fort Campbell), manufacturing
- Murfreesboro – Education, healthcare, distribution
👀 Watch: "Promising Futures" Legislation
The "Promising Futures Act" is a proposed bill to use sports betting revenue for child care scholarships. Keep an eye on this for 2026—it could add another layer to the Tennessee stack!
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.
Child Care Marketplace Platforms
Technology platforms like TOOTRiS that connect employees with vetted providers—including those with non-traditional hours.
Stipend Programs
Monthly stipends to employees for licensed care qualify for the federal credit. The MATA model!
Resource & Referral Services
Agencies that help employees find care. Subscription fees qualify under 45F.
Benefits Administration
Third-party administrators that manage employer child care benefits. Administrative fees are 45F-eligible.
Tennessee Section 45F FAQ
Ready to Calculate Your Tennessee Savings?
Use our calculator to estimate your potential federal 45F savings. Whether you want to build (TDHS Grant) or buy (Stipends + Tech), Tennessee has options for every employer!