The employer childcare tax credit, explained.

Section 45F is a federal income tax credit for employers who pay qualifying childcare costs for their employees. It's a credit, not a deduction — it comes off your tax bill dollar for dollar, up to an annual cap. Qualifying costs fall into three categories: paying a qualified childcare facility under a contract to care for your employees' children; operating a qualified childcare facility of your own; or acquiring, building, rehabilitating, or expanding such a facility.

For amounts paid or incurred after December 31, 2025, the credit is 40% of qualified childcare expenditures — 50% for an eligible small business — plus 10% of qualified resource and referral expenditures. The computed credit is capped at $500,000, or $600,000 for an eligible small business, and those caps will be adjusted upward each year for inflation starting in 2027. Before 2026 it was 25% with a $150,000 cap, so if you looked at this credit a few years ago, the numbers have changed.

Because Section 45F is part of the general business credit, the amount you can actually use in a given year is also limited by your regular tax liability less tentative minimum tax — the same ceiling that affects most business credits. Unused amounts generally carry back one year and forward 20 years.

The higher 50% rate and $600,000 cap apply to employers that generally meet a gross-receipts test of roughly $32 million or less on average. The test has specific rules about related entities, so it's worth confirming rather than assuming.

New York offers its own refundable employer-provided childcare credit for employers already allowed the federal 45F credit, for qualified expenditures at facilities located in New York State and resource and referral expenses for employees working in New York State. It is calculated as 200% of the federal credit amount, capped at $500,000 per tax year and applied at the entity level. Corporations file Form CT-652; everyone else files Form IT-652. Because it is refundable, it can pay out even in a year with little state tax liability.

• Amounts paid under a contract with a qualified childcare facility to provide childcare to your employees — the main path for most employers.
• Operating costs of a qualified childcare facility you run, including staff training and scholarship programs.
• Costs to acquire, build, rehabilitate, or expand property used as a qualified childcare facility — relevant only if you're building.

• The facility must be a qualified childcare facility and meet applicable state and local licensing requirements.
• Enrollment must be open to your employees and cannot discriminate in favor of highly compensated employees.
• Childcare expenses counted cannot exceed the fair market value of the care.
• No double benefit: you can't take both a deduction and the credit for the same dollar.
• Recapture applies to facility property — if a facility you acquired, built, or expanded stops qualifying within ten years, part of the credit can be clawed back. Ordinary contract payments to a licensed provider for your employees' care don't carry that ten-year property exposure.

Employees enroll their children with a licensed provider. Finrock verifies the facility, handles the agreement, pays the provider, and tracks every qualifying employer dollar with the documentation the credit requires — federal and New York. At year end you get a certified figure and the support behind it, filing-ready, not an estimate.