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.
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
Studies and Reports
- Early Childhood Finance Toolkit: A Curated Resource to Support State Leaders in a Mixed Delivery System (PDG B-5 TA Center, January 2021)
- Transforming the Financing of Early Care and Education, A Multi-media Guidebook, New America, 2020.
- Funding Our Future: Generating State and Local Tax Revenue for Quality Early Care and Education, The BUILD Initiative, Center for American Progress, Children’s Funding Project, Institute on Taxation and Economic Policy, and University of Maryland College Park, Schools of Public Health and Public Policy (2019). Funding Our Future: Generating State and Local Tax Revenue for Quality Early Care and Education. Boston, MA: The BUILD Initiative, 2019.
- Transforming the Financing of Early Care and Education. National Academies of Sciences, Engineering, and Medicine, 2018.
- Innovative Financing to Expand Services So Children Can Thrive, Children's Funding Project, 2018
- Innovative Financing for Early Childhood Education, State and Local Options, Save the Children Action Network, 2015.
- Tax credits for early care and education: funding strategy in a new economy, Susan Blank and Louise Stoney, 2011
- Innovative Financing Strategies for Early Childhood Care, Partnership for America’s Economic Success, 2009.
- Financing Early Childhood Care and Education: An International Review, Clive R. Belfield, Queens College, City University of New York, 2006.
- Financing Child Care in the United States: An Expanded Catalog of Current Strategies, Anne Mitchell, Louise Stoney, and Harriet Dichter, Harriet, 2001.
- Federal Financing of Child Care: Alternative Approaches and Economic Implications, Philip Robins, 1990.
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
- Income Taxes. What states do not tax income?
- Corporate Incomes Taxes. 44 States levy a corporate income tax. Does yours?
- Gross Receipts Tax. What states have a gross receipt tax?
- Estate or Inheritance Tax. What states have an estate tax?
- States Sales Taxes. Does your state have a sales tax? What is the sales tax rate?
Other State Financing Resources
- Tax Policy Center - The Tax Policy Briefing Book
- Tax Foundation – Tax Policy Research
Need More Information on Child Care Economic Impact?
Check out CED's Child Care in State Economies: 2024 Update
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
- Arkansas: Infographics - Workforce Tax Credit Infographic; High-Quality Early Learning Matters
- Colorado: Early Childhood Educator Income Tax Credit
- Minnesota: Infographic - High-Quality Early Learning Matters; Economic Impact of Child Care
- New York State Employer Tax Credit (NYS Council on Children & Families)
- New York State Child Care Tax Credit for Parents (NYS Council on Children & Families)
- New York: Expanded Federal Tax Credits for You!
- The Business Case for Investing in Child Care: Economic Impact in the U.S.
Pathways to High-Quality Child Care: The Workforce Investment Credit
- Employers: Credit for Employer-Provided Child Care Facilities and Services
- Joint Tax Committee Blue Book, Explanation of the Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16) - Excerpt of the Employer Sponsored Child Care Credit
- Parents: Child and Dependent Care Tax Credit (CDCTC)
- Joint Tax Committee Blue Book, Explanation of the Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16) - Excerpt of the Dependent Care Tax Credit
State Innovative Partnerships with Employers
- Overview: State Partnerships with Employers
- Iowa: Child Care Business Incentive Grant
- Kentucky: Employee Child Care Assistance Partnership
- Michigan: The MI Tri-Share Child Care Program (Tri-Share)
- North Dakota: Child Care Cost-Sharing with Businesses
- Texas: Child Care Provider Expansion Initiative
- Wisconsin: The Partner Up! grant program