Washington Child Care Tax Incentives
Current for 2026 Tax Year • Last Updated: January 24, 2026
No income tax? No problem! Use B&O Tax Credits (pending), Commerce Grants, and Federal 45F!
The Washington Reality: B&O Tax, Not Income Tax
📋 Washington Tax Structure 101
Washington has no state income tax. Instead, businesses pay the Business & Occupation (B&O) Tax on gross receipts.
What this means: Traditional "tax credits" work differently here. They apply against B&O taxes, not income taxes!
Claim a tax credit for 40% (Large Business) or 50% (Small Business) of qualified child care expenses against your federal income tax.
Apply for state grants that fund employer-provider partnerships. Cash up front, not tax season!
⚠️ Legislative Alert: B&O Tax Credit Coming!
HB 1564 / SB 5096: Proposes an Employer Child Care Contribution Credit against B&O taxes.
The Benefit: Dollar-for-dollar credit against your gross receipts tax for child care contributions.
Your Strategy: Structure your benefits NOW so you're ready to claim the credit the moment it goes live!
💰 The Commerce Grant Strategy
Since B&O tax credits are pending, the real money is in grants!
The Program: Washington Dept of Commerce manages Child Care Partnership Grants that fund collaborative projects where employers partner with providers.
The Pitch: "Don't look for a tax form; look for a Grant Application. The Dept of Commerce is actively funding employer-provider partnerships."
🍷 Washington Success Story: Ste. Michelle Wine Estates (Woodinville)
Solving the "Hospitality Hours" Problem
The Ste. Michelle Model
- The Challenge: Winery and hospitality staff work weekends and evenings—the hardest hours to find child care
- The Solution: Partnered with a local provider to offer subsidized child care specifically for their staff
- The Premium: Non-traditional hours cost more, but the Federal 45F Credit offsets this "premium"
- The Result: Competitive recruiting advantage in the hospitality industry
💡 The Lesson for Washington Employers
"Hospitality hours (weekends/evenings) are the hardest to cover. Ste. Michelle proves that you can use the Federal 45F Credit to subsidize the 'premium' cost of non-traditional hours. You don't need to be Amazon or Microsoft to make this work!"
🏢 Not Just for Big Tech
While Amazon and Microsoft have massive on-site programs, Ste. Michelle shows that mid-size employers in hospitality, agriculture, and manufacturing can solve child care creatively without building a $50M facility.
The Capital Gains "Hidden Lever"
A unique Washington tax strategy for founders and business owners.
📈 The 7% Capital Gains Tax Opportunity
Washington recently upheld a 7% Capital Gains Tax on gains over $250,000.
The Strategy: Charitable contributions (in excess of $250k) can be deducted against this tax.
The Play: "If you are a founder facing the new Capital Gains Tax, donating to a non-profit child care center might be the smartest tax move you can make."
1️⃣ Identify Your Gain
If you're selling stock, a business, or other capital assets with gains over $250k, you'll face the 7% tax.
2️⃣ Find a Non-Profit Center
Identify a 501(c)(3) non-profit child care center in your community that needs funding.
3️⃣ Make a Donation
Donate to the center. Your contribution is deductible against both federal income tax AND Washington Capital Gains Tax.
4️⃣ Double Win
You reduce your tax bill AND build goodwill in your community. The center might even prioritize your employees!
Washington-Specific Example: The "Grant + 45F" Strategy
A Seattle-area employer combines Commerce grants with Federal 45F for maximum impact.
| Strategy Component | Investment | Grant/Credit | Net Cost |
|---|---|---|---|
| Commerce Partnership Grant (facility startup) | $100,000 | -$75,000 (grant) | $25,000 |
| Employee Stipends ($400/mo × 25 employees) | $120,000 | -$60,000 (45F 50%) | $60,000 |
| Provider Partnership Contract | $50,000 | -$25,000 (45F 50%) | $25,000 |
| Resource & Referral Services | $5,000 | -$2,500 (45F 50%) | $2,500 |
| Total Annual Investment | $275,000 | -$162,500 | $112,500 |
💰 The Washington Advantage
Total Investment: $275,000 | Total Grants/Credits: $162,500 | Net Cost: $112,500
That's 59% off! And when the B&O Tax Credit passes, you'll save even more!
Washington Compliance & Resources
📋 Child Care Licensing (DCYF)
All child care facilities must be licensed by the Department of Children, Youth, and Families (DCYF).
DCYF Licensing →💰 Dept of Commerce Grants
Apply for Child Care Partnership Grants through the Washington Dept of Commerce.
Dept of Commerce →🔍 Find Licensed Providers
Search for licensed child care providers in Washington through the state's official database.
Child Care Net →📄 Federal Form 8882
File IRS Form 8882 to claim the federal Section 45F credit on your child care expenses.
IRS Form 8882 →Washington Child Care Landscape
Key Washington Markets
Employers in these Washington markets are leveraging grants and federal credits:
- Seattle-Bellevue-Tacoma – Tech, aerospace, healthcare (Amazon, Microsoft, Boeing)
- Spokane – Healthcare, education, manufacturing
- Vancouver – Manufacturing, healthcare, retail (Portland metro spillover)
- Tri-Cities (Kennewick-Richland-Pasco) – Energy, agriculture, government (Hanford)
- Olympia – Government, education, healthcare
- Woodinville-Walla Walla – Wine industry, hospitality, agriculture
Washington Section 45F FAQ
Ready to Navigate Washington's Unique Tax Landscape?
Use our calculator to estimate your Federal 45F savings. Combine with Commerce grants for maximum impact!