---
kind: "section"
citation: "26 U.S.C. § 45F"
title: "26"
title_heading: "Internal Revenue Code"
number: "45F"
heading: "Employer-provided child care credit"
release: "119-102"
url: "https://uscodex.org/usc/26/45F"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter A — Determination of Tax Liability"
  - "Part IV — Credits Against Tax"
  - "Subpart D — Business Related Credits"
---

# §45F. Employer-provided child care credit

- (a) **In general—** For purposes of [section 38](/usc/26/38.md), the employer-provided child care credit determined under this section for the [taxable year](/usc/26/441.md?p=b) is an amount equal to the sum of—
  - (1) 40 percent (50 percent in the case of an [eligible small business](#c-4)) of the [qualified child care expenditures](#c-1-B), and
  - (2) 10 percent of the [qualified child care resource and referral expenditures](#c-3-A),

  of the [taxpayer](/usc/26/1313.md?p=b) for such [taxable year](/usc/26/441.md?p=b).

- (b) **Dollar limitation—**
  - (1) **In general—** The credit allowable under [subsection (a)](#a) for any [taxable year](/usc/26/441.md?p=b) shall not exceed $500,000 ($600,000 in the case of an [eligible small business](#c-4)).
  - (2) **Inflation adjustment—** In the case of any [taxable year](/usc/26/441.md?p=b) beginning after 2026, the $500,000 and $600,000 amounts in [paragraph (1)](#b-1) shall each be increased by an amount equal to—
    - (A) such dollar amount, multiplied by
    - (B) the cost-of-living adjustment determined under [section 1(f)(3)](/usc/26/1.md?p=f-3) for the [calendar year](/usc/26/441.md?p=d) in which the [taxable year](/usc/26/441.md?p=b) begins, determined by substituting “[calendar year](/usc/26/441.md?p=d) 2025” for “[calendar year](/usc/26/441.md?p=d) 2016” in subparagraph (A)(ii) thereof.
- (c) **Definitions—** For purposes of this section—
  - (1) **Qualified child care expenditure—**
    - (A) **In general—** The term “qualified child care expenditure” means any amount [paid or incurred](/usc/26/7701.md?p=a-25)—
      - (i) to acquire, construct, rehabilitate, or expand [property](/usc/26/614.md?p=a)—
        - (I) which is to be used as part of a [qualified child care facility](#c-2-A) of the [taxpayer](/usc/26/1313.md?p=b),
        - (II) with respect to which a deduction for depreciation (or amortization in lieu of depreciation) is allowable, and
        - (III) which does not constitute part of the principal residence (within the meaning of [section 121](/usc/26/121.md)) of the [taxpayer](/usc/26/1313.md?p=b) or any [employee](/usc/26/101.md?p=i-3) of the [taxpayer](/usc/26/1313.md?p=b),
      - (ii) for the operating costs of a [qualified child care facility](#c-2-A) of the [taxpayer](/usc/26/1313.md?p=b), [including](/usc/26/7701.md?p=c) costs related to the training of [employees](/usc/26/101.md?p=i-3), to scholarship programs, and to the providing of increased compensation to [employees](/usc/26/101.md?p=i-3) with higher levels of child care training, or
      - (iii) under a contract with a [qualified child care facility](#c-2-A) to provide child care services to [employees](/usc/26/101.md?p=i-3) of the [taxpayer](/usc/26/1313.md?p=b), or under a contract with an intermediate entity that contracts with one or more [qualified child care facilities](#c-2-A) to provide such child care services.
    - (B) **Fair market value—** The term “qualified child care expenditures” shall not include expenses in excess of the fair market value of such care.
  - (2) **Qualified child care facility—**
    - (A) **In general—** The term “qualified child care facility” means a facility—
      - (i) the principal use of which is to provide child care assistance, and
      - (ii) which meets the requirements of all applicable laws and regulations of the [State](/usc/26/7701.md?p=a-10) or local government in which it is located, [including](/usc/26/7701.md?p=c) the licensing of the facility as a child care facility.

      [Clause (i)](#c-2-A-i) shall not apply to a facility which is the principal residence (within the meaning of [section 121](/usc/26/121.md)) of the operator of the facility.

    - (B) **Special rules with respect to a taxpayer—** A facility shall not be treated as a [qualified child care facility](#c-2-A) with respect to a [taxpayer](/usc/26/1313.md?p=b) unless—
      - (i) enrollment in the facility is open to [employees](/usc/26/101.md?p=i-3) of the [taxpayer](/usc/26/1313.md?p=b) during the [taxable year](/usc/26/441.md?p=b),
      - (ii) if the facility is the principal [trade or business](/usc/26/7701.md?p=a-26) of the [taxpayer](/usc/26/1313.md?p=b), at least 30 percent of the enrollees of such facility are [dependents](/usc/26/152.md?p=a) of [employees](/usc/26/101.md?p=i-3) of the [taxpayer](/usc/26/1313.md?p=b), and
      - (iii) the use of such facility (or the eligibility to use such facility) does not discriminate in favor of [employees](/usc/26/101.md?p=i-3) of the [taxpayer](/usc/26/1313.md?p=b) who are [highly compensated employees](/usc/26/414.md?p=q-1) (within the meaning of [section 414(q)](/usc/26/414.md?p=q)).
    - (C) **Treatment of jointly owned or operated child care facility—** A facility shall not fail to be treated as a [qualified child care facility](#c-2-A) of the [taxpayer](/usc/26/1313.md?p=b) merely because such facility is jointly owned or operated by the [taxpayer](/usc/26/1313.md?p=b) and other [persons](/usc/26/7701.md?p=a-1).
  - (3) **Qualified child care resource and referral expenditure—**
    - (A) **In general—** The term “qualified child care resource and referral expenditure” means any amount [paid or incurred](/usc/26/7701.md?p=a-25) under a contract to provide child care resource and referral services to an [employee](/usc/26/101.md?p=i-3) of the [taxpayer](/usc/26/1313.md?p=b).
    - (B) **Nondiscrimination—** The services shall not be treated as qualified unless the provision of such services (or the eligibility to use such services) does not discriminate in favor of [employees](/usc/26/101.md?p=i-3) of the [taxpayer](/usc/26/1313.md?p=b) who are [highly compensated employees](/usc/26/414.md?p=q-1) (within the meaning of [section 414(q)](/usc/26/414.md?p=q)).
  - (4) **Eligible small business—** The term “eligible small business” means a business that meets the gross receipts test of [section 448(c)](/usc/26/448.md?p=c), determined—
    - (A) by substituting “5-taxable-year” for “3-taxable-year” in [paragraph (1)](#c-1) thereof, and
    - (B) by substituting “5-year” for “3-year” in [paragraph (3)(A)](#c-3-A) thereof.
- (d) **Recapture of acquisition and construction credit—**
  - (1) **In general—** If, as of the close of any [taxable year](/usc/26/441.md?p=b), there is a [recapture event](#d-3) with respect to any [qualified child care facility](#c-2-A) of the [taxpayer](/usc/26/1313.md?p=b), then the tax of the [taxpayer](/usc/26/1313.md?p=b) under this chapter for such [taxable year](/usc/26/441.md?p=b) shall be increased by an amount equal to the product of—
    - (A) the applicable recapture percentage, and
    - (B) the aggregate decrease in the credits allowed under [section 38](/usc/26/38.md) for all prior [taxable years](/usc/26/441.md?p=b) which would have resulted if the [qualified child care expenditures](#c-1-B) of the [taxpayer](/usc/26/1313.md?p=b) described in [subsection (c)(1)(A)](#c-1-A) with respect to such facility had been zero.
  - (2) **Applicable recapture percentage—**
    - (A) **In general—** For purposes of this subsection, the applicable recapture percentage shall be determined from the following table:

      | If the recapture event occurs in: | The applicable recapture percentage is: |
      | --- | --- |
      | Years 1–3 | 100 |
      | Year 4 | 85 |
      | Year 5 | 70 |
      | Year 6 | 55 |
      | Year 7 | 40 |
      | Year 8 | 25 |
      | Years 9 and 10 | 10 |
      | Years 11 and thereafter | 0. |

    - (B) **Years—** For purposes of [subparagraph (A)](#d-2-A), year 1 shall begin on the first day of the [taxable year](/usc/26/441.md?p=b) in which the [qualified child care facility](#c-2-A) is placed in service by the [taxpayer](/usc/26/1313.md?p=b).
  - (3) **Recapture event defined—** For purposes of this subsection, the term “recapture event” means—
    - (A) **Cessation of operation—** The cessation of the operation of the facility as a [qualified child care facility](#c-2-A).
    - (B) **Change in ownership—**
      - (i) **In general—** Except as provided in [clause (ii)](#d-3-B-ii), the disposition of a [taxpayer](/usc/26/1313.md?p=b)’s [interest](/usc/26/856.md?p=f-1) in a [qualified child care facility](#c-2-A) with respect to which the credit described in [subsection (a)](#a) was allowable.
      - (ii) **Agreement to assume recapture liability—** [Clause (i)](#d-3-B-i) shall not apply if the [person](/usc/26/7701.md?p=a-1) acquiring such [interest](/usc/26/856.md?p=f-1) in the facility agrees in writing to assume the recapture liability of the [person](/usc/26/7701.md?p=a-1) disposing of such [interest](/usc/26/856.md?p=f-1) in effect immediately before such disposition. In the event of such an assumption, the [person](/usc/26/7701.md?p=a-1) acquiring the [interest](/usc/26/856.md?p=f-1) in the facility shall be treated as the [taxpayer](/usc/26/1313.md?p=b) for purposes of assessing any recapture liability (computed as if there had been no change in ownership).
  - (4) **Special rules—**
    - (A) **Tax benefit rule—** The tax for the [taxable year](/usc/26/441.md?p=b) shall be increased under [paragraph (1)](#d-1) only with respect to credits allowed by reason of this section which were used to reduce [tax liability](/usc/26/995.md?p=f-2-C). In the case of credits not so used to reduce [tax liability](/usc/26/995.md?p=f-2-C), the carryforwards and carrybacks under [section 39](/usc/26/39.md) shall be appropriately adjusted.
    - (B) **No credits against tax—** Any increase in tax under this subsection shall not be treated as a tax imposed by this chapter for purposes of determining the amount of any credit under this chapter or for purposes of [section 55](/usc/26/55.md).
    - (C) **No recapture by reason of casualty loss—** The increase in tax under this subsection shall not apply to a cessation of operation of the facility as a [qualified child care facility](#c-2-A) by reason of a casualty loss to the extent such loss is restored by reconstruction or replacement within a reasonable period established by the [Secretary](/usc/26/7701.md?p=a-11-B).
- (e) **Special rules—** For purposes of this section—
  - (1) **Aggregation rules—** All [persons](/usc/26/7701.md?p=a-1) which are treated as a single employer under subsections [(a)](/usc/26/52.md?p=a) and [(b)](/usc/26/52.md?p=b) of section 52 shall be treated as a single [taxpayer](/usc/26/1313.md?p=b).
  - (2) **Pass-thru in the case of estates and trusts—** Under regulations prescribed by the [Secretary](/usc/26/7701.md?p=a-11-B), rules similar to the rules of [subsection (d)](/usc/26/52.md?p=d) of section 52 shall apply.
  - (3) **Allocation in the case of partnerships—** In the case of [partnerships](/usc/26/7701.md?p=a-2), the credit shall be allocated among [partners](/usc/26/761.md?p=b) under regulations prescribed by the [Secretary](/usc/26/7701.md?p=a-11-B).
- (f) **No double benefit—**
  - (1) **Reduction in basis—** For purposes of this subtitle—
    - (A) **In general—** If a credit is determined under this section with respect to any [property](/usc/26/614.md?p=a) by reason of expenditures described in [subsection (c)(1)(A)](#c-1-A), the basis of such [property](/usc/26/614.md?p=a) shall be reduced by the amount of the credit so determined.
    - (B) **Certain dispositions—** If, during any [taxable year](/usc/26/441.md?p=b), there is a recapture amount determined with respect to any [property](/usc/26/614.md?p=a) the basis of which was reduced under [subparagraph (A)](#f-1-A), the basis of such [property](/usc/26/614.md?p=a) (immediately before the event resulting in such recapture) shall be increased by an amount equal to such recapture amount. For purposes of the preceding sentence, the term “recapture amount” means any increase in tax (or adjustment in carrybacks or carryovers) determined under [subsection (d)](#d).
  - (2) **Other deductions and credits—** No deduction or credit shall be allowed under any other provision of this chapter with respect to the amount of the credit determined under this section.
- (g) **Regulations and guidance—** The [Secretary](/usc/26/7701.md?p=a-11-B) shall issue such regulations or other guidance as may be necessary to carry out the purposes of this section, [including](/usc/26/7701.md?p=c) guidance to carry out the purposes of paragraphs [(1)(A)(iii)](#c-1-A-iii) and [(2)(C)](#c-2-C) of subsection (c).

## Source credit

(Added Pub. L. 107–16, title II, § 205(a), June 7, 2001, 115 Stat. 50; amended Pub. L. 107–147, title IV, § 411(d)(1), Mar. 9, 2002, 116 Stat. 46; Pub. L. 119–21, title VII, § 70401(a)–(f), July 4, 2025, 139 Stat. 212, 213.)

## Notes

### Editorial Notes

### Amendments

2025—Subsec. (a)(1). Pub. L. 119–21, § 70401(a), substituted “40 percent (50 percent in the case of an eligible small business)” for “25 percent”.

Subsec. (b). Pub. L. 119–21, § 70401(b), amended subsec. (b) generally. Prior to amendment, text read as follows: “The credit allowable under subsection (a) for any taxable year shall not exceed $150,000.”

Subsec. (c)(1)(A)(iii). Pub. L. 119–21, § 70401(d), inserted “, or under a contract with an intermediate entity that contracts with one or more qualified child care facilities to provide such child care services” before period at end.

Subsec. (c)(2)(C). Pub. L. 119–21, § 70401(e), added subpar. (C).

Subsec. (c)(4). Pub. L. 119–21, § 70401(c), added par. (4).

Subsec. (g). Pub. L. 119–21, § 70401(f), added subsec. (g).

2002—Subsec. (d)(4)(B). Pub. L. 107–147 substituted “this chapter or for purposes of section 55” for “subpart A, B, or D of this part”.

### Statutory Notes and Related Subsidiaries

### Effective Date of 2025 Amendment

Pub. L. 119–21, title VII, § 70401(g), July 4, 2025, 139 Stat. 213, provided that: “The amendments made by this section [amending this section] shall apply to amounts paid or incurred after December 31, 2025.”

### Effective Date of 2002 Amendment

Amendment by Pub. L. 107–147 effective as if included in the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107–16, to which such amendment relates, see section 411(x) of Pub. L. 107–147, set out as a note under section 25B of this title.

### Effective Date

Section applicable to taxable years beginning after Dec. 31, 2001, see section 205(c) of Pub. L. 107–16, set out as an Effective Date of 2001 Amendment note under section 38 of this title.