Leveraging the Child Care Tax Credits in H.R.1
Child care costs are crushing working families and destabilizing businesses nationwide. On July 4, 2025, President Trump signed H.R.1, creating the most significant child care tax benefit expansion in decades. These changes represent a $16 billion federal investment with strong bipartisan support. However, the broader bill also cuts other family support programs. This FAQ guide focuses on the child care tax provisions while acknowledging the complex policy landscape families must navigate.
Ready to turn these new opportunities into real results for your community? Rural Pathways specializes in helping employers, providers, and coalitions design and implement successful child care partnerships that maximize these enhanced tax credits. Don’t navigate this complex landscape alone.
Want a couple of quick guides that hit all the high points? Download the Rural Business Owner’s Guide to Child Care Tax Incentives and our Enhanced Two-Tier Provider Partnership Model.
Frequently Asked Questions
Understanding the Changes: What’s New
Q: What exactly is H.R.1 and when do the changes take effect?
H.R.1, the “One Big Beautiful Bill Act,” was signed into law on July 4, 2025. Changes take effect in January 2026. The bill passed by narrow margins and updates three key child care tax provisions that hadn’t been modernized since 1986-2001.
Q: Which tax credits were expanded?
Three major provisions received significant updates:
Child and Dependent Care Tax Credit (CDCTC): The only tax credit specifically designed to help parents offset child care costs
Employer-Provided Child Care Credit (45F): Supports businesses that want to provide or locate child care for employees
Dependent Care Assistance Program (DCAP): Allows working parents to set aside pre-tax income for child care expenses
Q: What else is in H.R.1 besides child care tax credits?
H.R.1 includes both expansions and cuts affecting families, including:
$100 million in military child care fee assistance through 2029
Some Child Tax Credit increases for higher-income families (19 million children remain excluded from the full credit)
Nearly $200 billion in cuts to SNAP (food assistance), potentially affecting 2+ million people including 800,000 children
Approximately $1 trillion in Medicaid cuts, potentially affecting 11.8 million Americans by 2034
28% of child care workers rely on Medicaid, so these cuts may impact the child care workforce
Q: Did the final law include all the child care reforms advocates wanted?
The final law included more child care provisions than many expected.
What advocates achieved:
Enhanced 45F Employer Child Care Credit (40% large business, 50% small business)
Improved CDCTC with increased credit percentages (up to 50% for lowest incomes)
Expanded DCAP from $5,000 to $7,500 annually
What advocates wanted but didn't get:
Fully refundable CDCTC (to help lowest-income families)
Decoupling DCAP from CDCTC (to allow families to benefit from both simultaneously)
Q: How significant are these changes compared to previous policy?
These represent the most substantial updates to child care tax policy in decades:
45F credit hadn’t been updated since 2001 (24 years)
DCAP hadn’t been updated since 1986 (39 years)
CDCTC hadn’t been meaningfully updated since 2001
The $16 billion investment addresses what advocacy groups call a “care crisis” costing the economy $122 billion annually in lost productivity, foregone earnings, and reduced tax revenue.
For Employers: Building Business Value
Employee turnover from child care challenges costs businesses $15K-$50K per departure. These enhanced tax credits finally make child care partnerships financially compelling. Rural business owners: download our quick guide to the tax credits here.
Q: How does the 45F Employer Child Care Credit work?
The 45F credit has been dramatically enhanced:
Small businesses: 50% credit (up to $600K annually)
Large businesses: 40% credit (up to $500K annually)
Net employer investment: Only $100-$300 per child per month after credits*
ROI: 40-50%, far exceeding typical business investments*
*Based on Rural Pathways’ Enhanced Two-Tier Provider Partnership Model calculations
Q: What expenses qualify for the 45F credit?
The enhanced 45F credit covers:
On-site child care facilities (construction, operation, equipment)
Subsidies or stipends paid directly to providers on behalf of employees
Contracted services with licensed child care providers
Intermediary services that help employees locate and access child care
Platform and administrative costs for child care benefit programs
Q: Can you give me real-world examples of the financial impact?
Here are practical scenarios based on different implementation approaches:
Large Employer Example*
Company provides $400/month stipends to 2,000 employees
Annual investment: $9.6 million
Maximum 45F tax credit: $500,000
Net annual cost: $9.1 million for comprehensive child care support
Mid-Size Employer Example*
Hospital partners with platform for provider access and concierge support
Annual costs: $250,000
45F tax credit: $100,000 (40% of qualified expenses)
Net cost: $150,000 for comprehensive employee benefit
Small Business Coalition Example*
Tech startup joins coalition providing up to $6,000 per employee
Coalition investment: $1.2 million across member companies
Maximum 45F credit: $600,000 (shared proportionally)
Effective cost reduction: 50% through enhanced small business rate
*Based on TOOTRiS case studies
Q: Can small businesses afford to participate?
Yes. The enhanced 50% small business credit makes participation viable, and small businesses can form coalitions to pool resources. Many communities are developing multi-employer partnerships to make child care investments accessible to businesses of all sizes.
Q: Are there any employers who can’t access the 45F credit?
Yes, there's a significant limitation in the current law. Nonprofit organizations are excluded from the enhanced 45F Employer Child Care Credit because the credit only applies against federal income tax liability. Nonprofits don't have this liability.
This affects a substantial workforce:
Over 10% of private sector workers are employed by nonprofits
67.3% of nonprofit workers are women (vs 47.1% in overall workforce)
Nonprofits pay an estimated $65 billion annually in payroll taxes
Current advocacy efforts are pushing for nonprofit employers to access these credits through payroll tax offsets, similar to how the Employee Retention Credit was structured during the pandemic. However, this change would require separate legislation.
Nonprofit employers can still help employees access DCAP and CDCTC benefits.
Q: What’s the step-by-step process for employers to get started?
Rural Pathways guides employers through:
Step 1: Discovery and Strategy (Week 1-2)
Assess workforce needs and current child care challenges
Conduct geographic analysis of available providers
Set goals and budget parameters
Step 2: Program Design (Week 3-4)
Choose implementation approach
Structure benefit levels and eligibility requirements
Plan tax credit optimization strategy
Step 3: Employee Rollout (Week 5-8)
Develop communication strategy
Train HR team on program administration
Launch employee education and onboarding
Step 4: Ongoing Management
Monitor utilization and satisfaction
Track qualified expenses for 45F credit claims
Prepare documentation for annual tax filing
Timeline Summary
Basic platform partnership (6-8 weeks to launch)
Provider network contracts (3-6 months)
On-site facility development (2-3 years)
Q: What are the broader business benefits beyond tax savings?
The 45F credit is just one component of the business case.
Recruitment and Retention Benefits:
Child care challenges are a major reason women leave the workforce
Reduces absenteeism and turnover costs
Attracts diverse, high-value talent
Productivity and Engagement:
Reduces employee stress and workplace distraction
Increases job satisfaction and loyalty
Demonstrates meaningful commitment to work-life balance
For Child Care Providers: Partnership Opportunities
Staff turnover rates of 40% are threatening the stability of child care programs nationwide. Employer partnerships offer a solution that benefits everyone.
Q: How do employer partnerships benefit child care providers?
Working with Rural Pathways, providers may achieve:
Reliable new revenue streams from employer contributions
Funding for living wages and professional staff
Dramatically reduced staff turnover (from 40% to under 10%)
Improved quality ratings and subsidy access
Long-term sustainability and community role
Q: How does the two-tier enrollment model work?
The Enhanced Two-Tier Provider Partnership Model includes:
Tier 1: Families with employers in the 45F partnership (guaranteed slots)
Tier 2: General public families (enroll if space available)
All families pay the same tuition and receive the same quality care
Q: What support is available for providers interested in partnerships?
TOOTRiS technology platform facilitates payments between employers and providers
Rural Pathways technical assistance supports coalition agreements, compliance, and operational setup
CPA and legal support for tax credit planning and partnership structuring
Q: What are the next steps for providers?
Identify employers with workforce challenges
Share the financial benefits (ROI, tax credits)
Partner with local coalitions for scale
Connect with Rural Pathways for partnership design
For Families: Maximizing Your Benefits
Without reliable child care, families face impossible choices between career advancement and caring for children. These new credits provide the first meaningful relief in decades.
Q: How much money can my family save with these new credits?
Families can achieve significant savings through DCAP and CDCTC benefits. Here’s an illustrative example:
Hypothetical child care tuition: $12,000/year
After DCAP + CDCTC savings: ~$7,650/year
Potential annual savings: $4,350+
This is a hypothetical calculation based on a family using the maximum DCAP benefit ($7,500 pre-tax) plus CDCTC savings on remaining expenses. Actual savings will vary significantly based on income level, family size, local child care costs, and individual circumstances. Families should consult with tax professionals to calculate their specific potential savings.
Q: What’s new with the Child and Dependent Care Tax Credit (CDCTC)?
The CDCTC now provides much more generous benefits:
Maximum credit percentage increased from 35% to 50% for lowest-income families
Nearly 4 million families will see increased credits
Income thresholds expanded for dual-income households earning up to $206K and single-income households earning up to $103K
Example savings for married couples filing jointly:
Income $33K-$35K: $900 more (from $1,500 to $2,400 max credit)
Income $43K-$150K: $900 more (from $1,200 to $2,100 max credit)
Income $182K-$186K: $360 more (from $1,200 to $1,560 max credit)
Q: How does the improved Dependent Care Assistance Program (DCAP) work?
DCAP now allows you to set aside $7,500 per year (up from $5,000) in pre-tax dollars to pay for child care expenses.
Q: Do I need my employer to participate for my family to benefit?
No. Families can access DCAP and CDCTC benefits even if their employer doesn’t participate in the 45F partnership program. However, if your employer does participate, you get guaranteed child care slots in addition to the tax savings.
Q: How do I navigate the child care benefits alongside other program changes?
Maximize your child care benefits:
Apply for DCAP through your employer
Claim the enhanced CDCTC on your taxes
Advocate for employer partnerships if possible
Plan for potential impacts:
If you receive SNAP benefits, contact your local office about work requirement changes
If you rely on Medicaid, stay informed about potential coverage changes
Consider how workforce changes might affect provider stability
Q: How do I advocate for child care benefits at my workplace?
Share these key points with your HR department:
Child care access equals workforce stability
Employee turnover costs employers $15K-$50K per employee
Employer partnerships yield 40-50% ROI through the 45F tax credits
Basic partnerships can launch in 6-12 months
Implementation and Support
Q: What technology and support platforms are available?
TOOTRiS Platform Benefits:
Access to 230,000+ child care providers across all 50 states
Automated compliance tracking and IRS documentation
Real-time expense tracking for tax credit optimization
Minimal HR administrative burden
Other Support Systems:
Rural Pathways: Technical assistance for coalition building and community partnerships
Tax professionals: Essential for credit structuring and compliance
Legal support: Partnership agreements and regulatory compliance
Q: What’s the broader economic impact?
These partnerships create significant economic returns:
Direct local investment of $1.2M-$15M+ depending on scale*
Reduced turnover savings for employers to the tune of $15K-$50K per employee
Boosts family incomes and community spending
Contributes to long-term infrastructure by creating permanent child care capacity
*Based on Rural Pathways’ Enhanced Two-Tier Provider Partnership Model calculations
Q: What’s the bottom line?
The enhanced federal tax credits represent the most significant improvement to child care tax benefits in decades. These provisions make sustainable child care partnerships financially viable and create opportunities for employers, providers, and families to work together.
However, families should approach these benefits as part of a broader strategy considering the full policy landscape. While child care tax credits expand, other support programs face significant cuts.
For families: Take advantage of these child care tax benefits while staying informed about changes to other programs.
For employers: These partnerships offer strong business returns while supporting your workforce during increased economic pressures.
For providers: Employer partnerships provide stability in an uncertain funding environment while helping you serve families who need reliable, affordable care.
Take Action
The enhanced federal tax credits create unprecedented opportunities. Success requires strategic planning, coalition building, and expert implementation support. Rural Pathways has the experience and expertise to help you transform these policy changes into real results for your community.
For employers: We’ll help you design child care benefit programs that maximize your 45F tax credits while delivering measurable workforce benefits. From initial strategy through ongoing management, we guide you through every step.
For providers: We specialize in developing sustainable employer partnerships that stabilize your revenue, improve staff retention, and enhance program quality. Let us help you navigate the partnership development process.
For community leaders: We work with coalitions to develop comprehensive approaches that serve multiple employers, providers, and families simultaneously. Our technical assistance ensures your initiative launches successfully and achieves long-term sustainability.
Ready to get started? Contact Rural Pathways today to discuss how these new tax credits can work for your specific situation. Don't let this $16 billion opportunity pass by!
Additional Resources
Rural Pathways: Technical assistance for coalition building and implementation
TOOTRiS: Technology platform for payment management
Tax professionals: Essential for credit planning and compliance
First Five Years Fund: Research and policy information
Child Care Aware of America: Comprehensive family policy information
For current information and detailed guidance, consult with qualified tax professionals and visit ffyf.org for updates on federal child care policy. This FAQ guide reflects information available as of September 2025 and focuses specifically on child care tax provisions within H.R.1. Learn about other key tax provisions here.