Employers: Time is running out on the WOTC

"August 22, 2025 by" Bley & Zeitlin, Certified Public Accountants

Is your organization looking to build a more family-friendly workplace? Among the more visible ways to do so is to provide child care for employees. Problem is, the costs of sponsoring such a benefit can be imposing.

Starting in 2026, however, the recently passed One Big Beautiful Bill Act (OBBBA) gives a big boost to the employer-provided child care tax credit. This development may make the concept a little more feasible.

Ground rules

Under Section 45F of the tax code, an employer may claim a tax credit for eligible expenses paid or incurred for providing child care to employees. Through 2025, the credit is equal to 25% of qualified expenses, plus 10% of eligible resource and referral expenses, up to a $150,000 maximum.

Qualified expenses can generally take one of three forms. The rules define them as amounts paid or incurred to:

Acquire, construct, rehabilitate or expand property used for the taxpayer’s eligible child care facility,
Operate that child care facility, including the costs of training and compensating its employees, or
Contract with a qualified child care facility to provide eligible services to the taxpayer’s employees.

Important: Qualified child care expenses exclude amounts that exceed the fair market value of providing such care.

Upward changes

As mentioned, beginning next year, the employer-provided child care credit gets some substantial enhancements.

First, for eligible amounts paid or incurred after December 31, 2025, the credit increases from 25% to 40% of the taxpayer’s qualified expenditures for the tax year, and the maximum dollar amount rises from $150,000 to $500,000.
Second, for qualifying small businesses, the tax break is 50% of eligible expenses up to a maximum of $600,000. To qualify, a small business must meet the gross receipts test for use of the cash method of accounting under Sec. 448(c) of the tax code. (If you believe your organization may be eligible, contact us for further details.) For tax years beyond 2026, the $500,000 and $600,000 maximum credit amounts will be annually adjusted for inflation.
Third, the OBBBA permits eligible small businesses to pool their resources to provide child care to employees and still claim the credit. This includes using a third party to facilitate child care services for workers. As of this writing, we’re awaiting regulations or other guidance from the Treasury Secretary to clarify how resource pooling will work in practice.

Pros and cons

By enhancing this tax credit, the OBBBA incentivizes employers to more actively address the lack of access to affordable and reliable child care in many communities. It’s a pressing problem that impedes many workers’ ability to hold jobs or be as productive as possible.

By offering on-site care, reserving spots with local vendors or contracting with a provider, your organization can offer a benefit that could potentially be life-changing to many employees. In turn, you may see upticks in hiring, retention and productivity.

Of course, you must keep in mind the associated risks and responsibilities. For starters, you need the cash flow to support launching and maintaining such a benefit. If you’re going to build a facility on-site, you’ll need to ensure it:

Meets licensing and safety requirements,
Retains qualified staffing, and
Keeps up with ongoing operational costs, including insurance.

Even when outsourcing, you’ll have to exercise due diligence to select a reputable provider, monitor service quality and make changes as necessary.

There’s also the question of long-term demand. The child care needs of any workforce can fluctuate over time based on the national and local economy, staff demographics, and other factors — such as the feasibility of remote work for some positions. Committing to an on-site facility or multi-year vendor contract could lead to having to pay for an expensive, underused resource.

Complex decision

The OBBBA’s changes to the employer-provided child care credit may be a tipping point for employers who’ve been considering sponsoring such a benefit but couldn’t quite rationalize the costs. Still, it’s a complex decision. Contact us for help evaluating your operational capacity, workforce demographics, and current and future budgets before committing.