Employer-Sponsored Child Care Tax Credits FAQs
Frequently Asked Questions
What is the amount of Utah's employer-sponsored child care tax credit?
Utah’s nonrefundable employer-sponsored child care tax credit is:
• 20% of the construction expenditures for an on-site child care facility;
• 30% of qualified child care expenditures for an eligible small business; and
• 10% of qualified child care expenditures for a large business.
What types of expenditures qualify for Utah's employer-sponsored child care tax credit?
Starting on January 1, 2026, if an employer pays or incurs an expenditure for any of the following expenses, they may be subject to the applicable tax credit:
• acquire, construct, rehabilitate, or expand property for an on-site qualified child care facility;
• the operating costs (including costs related to training employees and providing increased compensation to employees with higher training) of an on-site qualified child care facility (whether by directly operating the facility or contracting with a third-party provider);
• entering into a contract with an off-site qualified child care facility to provide child care services for the employer’s employees; or
• entering into a contract with an intermediate entity that contracts with one or more off-site qualified child care facilities to provide child care services for the employer’s employees.
Which employers qualify as an eliigible small business to receive the higher tax credit?
Utah’s employer-sponsored child care tax credit mirrors the federal tax credit–meaning businesses must meet the modified gross receipts test of 26 U.S.C. §448(c) to qualify as a small business. In order to be considered small, the business must have average annual gross receipts for the 5 taxable-year period ending with the preceding taxable year that do not exceed $32,000,000 in 2026. The amount is adjusted each year for inflation, rounded to the nearest multiple of $1,000,000.
Does an employer have to claim the federal employer-provided child care tax credit (45F) in order to claim Utah's state corporate/individual income tax credit?
Yes. An employer must claim the federal employer-sponsored child care tax credit in order to be eligible for the Utah state child care tax credit.
How does Utah's employer-provided child care tax credit combine with the federal 45F credit?
The federal 45F employer-sponsored child care credit provides a 50% child care tax credit for small employers and a 40% child care tax credit for large employers. That means a small employer may be eligible for up to a combined 80% state/federal employer-sponsored child care tax credit and a large employer may be eligible for up to a combined 50% employer-sponsored state/federal child care tax credit.
How does Utah's employer-provided child care tax credit differ from the federal 45F credit?
Utah’s employer-sponsored child care tax credit is similar to, and meant to work in conjunction with, the federal 45F credit. Nevertheless, there are differences, not all of which are listed here. For example, the federal 45F credit:
• caps the amount of eligible expenditures to $500,000 ($600,000 in the case of an eligible small business) per year in childcare-related expenses;
• provides a tax credit of 40% (or 50% in the case of an eligible small business) of qualified childcare facility or provider costs;
• provides a tax credit of 10% of childcare resource and referral expenditures;
• does not treat construction costs differently than other childcare-related expenses; and
• applies to both licensed home- and center-based providers.
Is either the federal or Utah's employer-sponsored child care tax credit refundable?
No. Businesses must have some form of tax liability to realize the credit. Nonprofit, tribal, and government employers will not benefit from either the federal or Utah employer-sponsored child care tax credit.
Can Utah's employer-sponsored child care tax credits be recaptured?
Yes. There is a five-year recapture period. If an employer fails to operate an on-site qualified child care facility for which it claims a state tax credit or for at least 5 years, or any other recapture event relating to eligible child care expenditures, then the employer must repay 100% of the credit if it happens within two years, 75% if it happens between two and three years, 50% if it happens between 3 and 4 years, and 25% if it happens between 4 and 5 years.
Can an employer receive Utah's employer-sponsored child care tax credit if it charges or deducts pay from employees for child care services?
No. An employer can not receive Utah’s employer-sponsored child care tax credit if it obtains payment from an employee or deducts from an employee’s salary or wages any amount for child care services. This will limit the applicability of Utah’s child care tax credit for child care providers whose employees’ children are enrolled at the child care center where their parent works.
What type of child care is eligible for the employer-sponsored child care tax credit?
For purposes of Utah’s employer-sponsored child care tax credit, the only qualified child care facility is a center-based child care facility located within Utah that is not the home of the provider. This is different than the federal credit, which applies to both home- and center-based licensed providers. Employers may support employees who use home-based providers by contributing to the employee’s Dependent Care Assistance Program (DCAP).
Can the employer-sponsored child care tax credit be carried forward or back?
It depends. Utah’s 30% (small employer) and 10% (large employer) credit for qualified childcare expenses can not be carried forward or back. The 20% credit for construction expenses of on-site facilities may be carried forward for 5 taxable years.
The 45F federal employer-sponsored child care tax credit is part of the general business credit subject to the carryback and carryforward rule. This means employers may carryback unused federal credit one year and then carryforward 20 years after the year of the federal credit.
Who is eligible to be a third-party provider that an employer may contract with to operate its on-site facility?
The third-party provider may be either a new child care provider or an existing one that can perform the contract without reducing the provider’s existing child care services.
When do the expanded Utah and federal employer-sponsored child care tax credits become effective?
Both tax credit revisions apply to any qualifying expenditures beginning January 1, 2026.
Do either of these laws require employers to invest in child care?
No. Both are entirely optional and nothing is mandatory. Employers can choose whether to participate and how much support to provide.
Is there a mininmum level of investement required to receive either child care tax credit?
No. Employers can choose to participate at whatever level makes sense for them and their workforce.
Do the expenses incurred in hiring an intermediate entity qualifty for the child care tax credits?
Likely yes, but check with your tax advisor. The U.S. Chamber of Commerce Foundation Childcare Gameplan lists fees paid to intermediaries as qualifying expenditures, but the federal regulations have not yet been released (as of May 26, 2026).
Can an employer claim an employer-sponsored child care tax credit if it also contributes towards an employee's dependent care assistance plan (DCAP)?
Yes. Qualifying expenses for the employer-sponsored child care tax credit are not paid directly to the employee. The payments must go to a state-licensed provider (either onsite, via direct contract, or via an intermediary).
The Dependent Care Assistance Program (DCAP), which allows working parents to set aside a small amount of their pre-tax paycheck to pay for dependent care expenses—similar to a health care flexible spending account—up to $3,750 ($7,500 for joint filers).
A qualifying dependent must be under age 13 and live with you or 13 or older, regularly spend at least 8 hours a day in your household and be incapable of self care. Eligible elder and child care expenses must be recognized by the Internal Revenue Service (IRS) as a dependent.
Employers may choose to match or fully fund their employee’s DCAP account, but account holders forfeit any unspent funds at the end of the year.
Employers can offer both benefits, child care expenditure investments which are eligible for the tax credit and DCAPs, simultaneously.
How can employers learn more about state and federal employer-sponsored child care tax credits?
The Governor’s Office of Economic Opportunity maintains a website through which employers may obtain information and resources regarding the employer-provided child care tax credits.
In addition, the Policy Project will be hosting an early-adopters cohort if your business wants to work alongside other employers. Reach out to them to join: The Policy Project
Are there other tax credits employers can access to support parents with young children in their workforce?
Yes. The federal Employer Tax Credit for Paid Family and Medical Leave (45S) provides a tax credit for employers who provide wages during paid leave or pay insurance premiums on a policy that would provide PFML wages.
Is there an age limit for either the federal or Utah employer-sponsored child care tax credit?
No. Neither the federal 45F credit nor Utah’s employer-sponsored tax credits include any age limits. In contrast, Dependent Care Assistance Programs (DCAPs) only apply to a dependent child under the age of 13, or a dependent/spouse who is physically or mentally incapable of taking care of himself or herself and has lived with the taxpayer for than half of the taxable year.
Is there any minimum number of employees a business must have in order to claim the tax credit?
No. However, if there are anti-discrimination rules that might restrict eligibility. To claim the credit, employers can not discriminate in favor of employees who are “highly compensated employees”, which means any employee who was a 5% owner at any time during the preceding year or had compensation in excess of $160,000 in 2026 and was in the top paid group (top 20%). This makes it difficult for sole practitioners to claim the credit if they are an owner or highly compensated.
How do the child care tax credits relate to the business expense deduction?
The tax credit can be coupled with the business expense deduction. According to GAO, employers can generally deduct the costs of providing child care for their employees as a trade or business expense and can also opt to claim the 45F tax credit and deduct a portion of their child care expenses as a business deduction.
Where can my employees find childcare providers?
People searching for childcare can search for quality childcare and afterschool providers using the search tool hosted by the Office of Child Care at jobs.utah.gov/occ/cac.html. Parents can search by location, cost, type, licensing record, and Child Care Quality System rating.