Economic Growth Depends on Child Care

Child Care Tax Incentives Can Help Support Employers and Parents

Employers

State Employer Child Care Tax Credits

  • 25 states have an employer child care tax credit or employer tax incentive for child care.
  • These credits are designed to incent employers to provide child care directly, contract within their community for child care for their employees, or help either expand the supply of child care or make it more affordable for their employees.
Alphabetical List of All States

Parents

State Dependent Care Tax Credits

  • 25 states have a dependent care tax credit to help parents with the cost of child care.
  • Another 4 states (Idaho, Massachusetts, Montana, and Virginia) allow parents a tax deduction for some of their child care expenses.
  • These credits are designed to help make child care more affordable for parents.
Alphabetical List of All States
Map of State Child Care Tax Credits for Employers and Parents
States with a parent dependent care tax credit & employer child care credit
States with an employer child care tax credit only
States with a parent dependent care tax credit only
No tax credits for child care (for parents or employers)
Everything You Wanted to Know About Child Care Financing
Early Childhood Financing
Studies and Reports
Early Childhood Financing Options

What are tax expenditures? Tax Policy Center (Urban Institute & Brookings Institution)

Estimates of Federal Tax Expenditures, Joint Committee on Taxation (Annual Estimates)

Summary of State Revenue Sources Tax Policy Center (Urban Institute & Brookings Institution)

State Tax Expenditure and Budget Estimate State-by-State Compilation (November 2020)

Federal Child Tax Credit Overview (including state level child tax credits)  National Conference of State Legislatures (October 2021)

Employer-Provided Child Care Credit Overview Internal Revenue Service

State Child Tax Credit Enactments National Conference of State Legislatures (October 2021)

State Revenue Options

Other State Financing Resources


Need More Information on Child Care Economic Impact?
Tax Terms in Brief

Tax Credit.  A tax credit is applied against taxes owed. In this way, the amount of taxes that would otherwise be paid is reduced dollar for dollar.

Tax Deduction. A tax deduction lowers taxable income against which taxes are applied. 

For example: 

For a taxpayer in the 35% tax bracket:

  • a $100 tax deduction reduces taxes owed by $35 (35% of the amount spent).
  • a $100 tax credit reduces taxes owed by $100 (100% of the amount spent).

Refundability.  When a tax credit is refundable, it means that a taxpayer receives a check in the amount that exceeds the level of taxes that are owed.

For example:

  • A taxpayer who is eligible for a tax credit worth $500 and who owes only $100 in taxes can only claim $100 of the credit.
  • If the same tax credit were refundable, the taxpayer could claim the full $500 because $400 would be sent to the taxpayer as a refund).
Tax Credit Toolbox

State Examples

 

 

Pathways to High-Quality Child Care: The Workforce Investment Credit