Employer-Provided Child Care Credit: Form 8882, Limits, and Recapture

Employers who spend money on childcare for their workforce can claim the employer-provided child care credit under Internal Revenue Code Section 45F, worth up to $150,000 per year.¹ For tax years beginning in 2026, the credit covers 40% of qualified childcare facility costs (50% for eligible small businesses) and 10% of resource and referral costs.² Those rates are a jump from the 25% that applied through 2025, which makes the credit meaningfully more valuable going forward.

What Spending Qualifies

Section 45F splits qualifying costs into two categories, each with its own credit rate.

The larger category is qualified childcare facility expenditures. That covers money spent to build, buy, renovate, or expand property used as a childcare facility, plus ongoing operating costs like staff wages, training, and scholarship programs for employees earning childcare credentials.² Payments under a contract with a qualified childcare provider serving your employees count too, so you can access this bucket without ever operating a facility yourself. Capital expenditures must involve property eligible for depreciation, which means raw land alone does not qualify. Expenses also cannot exceed the fair market value of the care provided.

The smaller category is resource and referral expenditures: payments to agencies or services that help your employees find childcare in their communities. The rate is only 10%, but referral programs need almost no infrastructure, so they suit smaller employers who cannot justify a facility.

Keep the two categories cleanly separated in your books. The IRS expects you to show which dollars went to facility operations and which went to referrals. Commingled records make it easy for an examiner to disallow costs that cannot be traced to one bucket or the other.

What Counts as a Qualified Child Care Facility

Not every space where children are watched will qualify. The facility must be licensed by the state or local government where it operates, and its primary purpose must be childcare. A break room with a playpen does not count.

Two restrictions catch employers off guard:

No home-based facilities. A facility that doubles as the principal residence of the operator, the employer, or any employee of the employer is excluded from the credit entirely. Contracting with a home-based daycare provider does not satisfy the statute.³
No discrimination in favor of highly compensated employees. For 2026, a highly compensated employee is anyone who earned more than $160,000 in the prior year. If enrollment slots or eligibility rules disproportionately favor that group, the whole facility fails to qualify.⁴⁵

You can hire a third party to run the facility, and it can enroll children from the general public when space allows. What matters is that the facility remains a licensed, qualified provider throughout. Keep enrollment logs and licensing records to show compliance if the IRS asks.

How to Calculate the Credit

For tax years beginning in 2026:

Multiply qualified childcare facility costs by 40% (50% for eligible small businesses).²
Multiply resource and referral costs by 10%.²
Add the two together. The combined total is capped at $150,000 per tax year.¹

A company spending $300,000 on facility operations and $50,000 on referrals in 2026 would calculate ($300,000 × 40%) + ($50,000 × 10%) = $125,000. At the 50% small-business rate on the same facility spending, the facility portion alone reaches $150,000 and the cap kicks in.

Basis and Deduction Tradeoffs

The credit is not free money on top of your normal deductions. You must reduce the tax basis of any qualified childcare facility property by the credit amount claimed, and you lose the ability to deduct or claim any other credit for those same expenditures.³ Future depreciation on the facility shrinks, and you cannot also deduct the operating costs used to generate the credit. The credit usually still beats the forgone deductions, but have your accountant model both before you commit.

How to File the Credit

The credit flows through two forms before it hits your return.

Form 8882

Start with IRS Form 8882, Credit for Employer-Provided Childcare Facilities and Services. Enter qualified childcare facility expenditures on Line 1 and resource and referral expenditures on Line 3.⁶ Lines 2 and 4 apply the percentages, and later lines combine and cap the result.

Form 3800

The credit from Form 8882 then moves to Form 3800, which consolidates all general business credits.⁷ The combined total on Form 3800 flows onto your annual income tax return and offsets your tax liability. Form 3800 must be filed with the source credit form to claim the credit.⁸

Partnerships and S Corporations

Partnerships and S corporations calculate the credit on Form 8882 but do not carry it to Form 3800 at the entity level. They report it on Schedule K, and the credit passes through to partners or shareholders.⁶ Those recipients pick it up on Line 5 of their own Form 8882 and carry it to Form 3800 on their own return. If your only source of the credit is a pass-through, you can skip Form 8882 entirely and report the credit directly on Form 3800. The pass-through entity handles any required basis reduction on the underlying property.

Credit Limits and Carryovers

Because Section 45F is part of the general business credit, it is subject to the overall Section 38 limitation. That limit is generally your net income tax minus the greater of your tentative minimum tax or 25% of your net regular tax liability above $25,000. Any unused credit can be carried back one year and forward up to 20 years.⁹

One narrow point: any recapture tax owed under Section 45F is not treated as a tax imposed by the chapter for purposes of determining credits or the alternative minimum tax.² A recapture payment does not open the door to additional credits or AMT adjustments to soften it.

Recapture: The Ten-Year String

The credit comes with a ten-year string attached. If you stop using the facility for qualified childcare or dispose of your interest in it before the ten-year window closes, you owe back a percentage of the credit you previously claimed:

Years 1 through 3: 100% recapture
Year 4: 85%
Year 5: 70%
Year 6: 55%
Year 7: 40%
Year 8: 25%
Years 9 and 10: 10%
Year 11 onward: 0%

Year 1 begins on the first day of the tax year in which the facility is placed in service.² Closing the facility in year three means repaying every dollar of credit. Closing it in year eight means repaying 25%. If you might shut down within the first three years, the credit provides no lasting benefit.

Selling or Transferring the Facility

A change in ownership triggers recapture unless the buyer signs a written agreement to assume the seller’s recapture liability.¹⁰ With such an agreement, the buyer steps into the seller’s shoes and the recapture clock keeps running as if no change occurred. Without it, the seller owes recapture at the percentages above. This provision gets overlooked in business sales and surfaces later as an unexpected tax bill. If you are buying or selling a business that claimed the 45F credit, address the recapture agreement directly in the purchase documents.

How Long to Keep Records

The IRS generally wants records supporting a credit kept for at least three years from filing.¹¹ For Section 45F, the ten-year recapture window sets the real retention floor. If a recapture event can raise your tax a decade after you first claimed the credit, the supporting documentation has to survive that long. Keep copies of Form 8882, Form 3800, facility licensing records, enrollment logs, and expense documentation for as long as any recapture liability remains outstanding.

1
Office of the Law Revision Counsel. 26 USC 45F – Employer-Provided Child Care Credit
2
Office of the Law Revision Counsel. 26 USC 45F – Employer-Provided Child Care Credit
3
Office of the Law Revision Counsel. 26 U.S. Code 45F – Employer-Provided Child Care Credit
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Office of the Law Revision Counsel. 26 USC 45F – Employer-Provided Child Care Credit – Section: Definitions
5
Internal Revenue Service. Notice 2025-67 – 2026 Amounts Relating to Retirement Plans and IRAs
6
Internal Revenue Service. Form 8882 – Credit for Employer-Provided Childcare Facilities and Services
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Internal Revenue Service. About Form 3800, General Business Credit
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Internal Revenue Service. Instructions for Form 3800 and Schedule A
9
Office of the Law Revision Counsel. 26 USC 39 – Carryback and Carryforward of Unused Credits
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Office of the Law Revision Counsel. 26 USC 45F – Employer-Provided Child Care Credit
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Internal Revenue Service. Topic No. 305, Recordkeeping