Shortages in affordable child care are not just a family problem — they are an economic one. A 2025 analysis by the Bipartisan Policy Center warns the U.S. could lose as much as $329 billion over the next decade, and new findings from the U.S. Congress Joint Economic Committee — Minority suggest much of that loss could be reduced by better use of existing tax tools.
Employers and parents already have several tax options to lower child care costs, but the latest reports show many of those incentives are rarely used or hard to navigate. That gap leaves working families paying more and businesses bearing higher turnover and productivity losses.
Which tax breaks exist and why they matter
There are three central federal programs that aim to ease child care costs for households and employers: the child and dependent care tax credit, employer-managed pretax accounts, and an employer tax credit for providing child care. Awareness and access vary widely across the private sector.
| Program | What it does | Access and common barriers | Typical maximum benefit |
|---|---|---|---|
| Child and Dependent Care Tax Credit (CDCTC) | Reduces federal income tax for qualifying child or dependent care expenses. | Underclaimed — only a small share of eligible taxpayers use it; rules on eligibility and income phaseouts can be confusing. | Credits applied to up to $3,000 for one qualifying person, $6,000 for two or more. |
| Dependent care FSA (DCAP) | Allows employees to set aside pretax income to pay for qualifying care. | Available through employers; fewer than half of private-sector workers have access. | Up to $7,500 pretax per year for eligible expenses. |
| Employer childcare credit (Section 45F) | Nonrefundable credit for employers that build, operate, or partner to provide child care. | Extremely low take-up on corporate tax returns; administrative complexity cited as a factor. | Offset of 40% of eligible expenses (50% for small businesses); caps around $500,000 ($600,000 for small firms) annually. |
Despite those provisions, the data point to striking underuse. The Joint Economic Committee — Minority estimates only about 12% of taxpayers with children claim the CDCTC. Roughly 13% of private-sector workers have employer-provided child care benefits, and less than half can access a dependent care FSA. Corporate uptake of the Section 45F credit was negligible in the last available filing-year snapshot.
Part of the problem is practical: many workers either don’t have qualifying expenses, don’t owe federal income tax against which to apply a credit, or simply find the rules too opaque to claim benefits. On the employer side, firms may not realize the potential return from investing in on-site care or partnerships with local providers.
How using these incentives changes the math
When employers make full use of tax incentives for workplace child care, the financial picture can shift rapidly. The Joint Economic Committee — Minority model projects a hypothetical firm that claims the relevant credits could reduce its tax bill by hundreds of thousands of dollars over several years — and potentially generate millions in value from lower turnover and higher productivity. For an individual employee at that firm, the combined tax savings and lower out-of-pocket costs could amount to nearly $10,000 over five years under the report’s example.
Financial planners note that pretax accounts such as DCAPs are one of the fastest ways for employees to lower taxable income. But they caution that these accounts require careful planning because unused funds are typically forfeited if not spent within the plan year, and not all activities — for example, overnight camps — qualify.
- For parents: Check whether your employer offers a DCAP or dependent care FSA and whether you qualify for the CDCTC before filing taxes.
- For employers: Consider whether the 45F employer credit could offset the cost of developing child care options; the long-term gains from reduced turnover can exceed the initial outlay.
- For policymakers: Simpler guidance and better outreach could boost program use and reduce broader economic losses tied to child care shortages.
The issue has drawn bipartisan attention in Congress. In recent months, Senators Maggie Hassan and Dan Sullivan proposed creating a dedicated IRS liaison to help businesses understand and claim existing child care tax incentives — a recognition that better education and simpler administration may increase uptake.
Why this matters now: with rising child care costs and tight labor markets, underused tax tools represent a near-term lever to lower expenses for families and improve workforce stability for employers. Making those tools easier to access could translate into immediate financial relief for households and measurable gains for the broader economy.
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