Families could see bigger tax breaks for child care soon. How much will they get?
AI-generated summary reviewed by our newsroom.
- New tax credit boosts child care aid for families earning up to $206,000 annually.
- Low-income households see limited benefit due to nonrefundable credit structure.
- Employers can potentially gain larger incentives for providing child care.
The Trump administration and its allies are trumpeting how their Big Beautiful Bill’s child care policies are an historic triumph for working parents.
While the new law has provided help with the cost of child care and dependent expenses, as well as new incentives for employer support, there’s also concern that many who most need aid won’t be able to get it.
“Overall, the changes are relatively modest. They primarily benefit middle- and upper-income families and provide little if any benefits to low-income families who have limited access to other programs to help them afford child care,” said Margot Crandall-Hollick, principal research associate at the nonpartisan Tax Policy Center.
Early childhood advocates were somewhat more upbeat.
The bill’s child care tax changes “are not a complete solution — particularly for households with the lowest incomes — but they do bring long-overdue updates to outdated provisions,” said Radha Mohan, executive director of the nonpartisan Early Care & Education Consortium.
The bill extends tax benefits to millions of working families and provides new incentives for employers to get involved in child and dependent care.
The First Five Years Fund, a Washington-based advocacy group, estimates that a family of four with two children and an income of $43,000 to $150,000 could get a credit of up to $2,100 for child care expenses, or $900 more than under current law.
It estimates that 4 million families can receive higher credits, including two-earner households with incomes up to $206,000 and single-income households with incomes up to $103,000..
How big a tax break?
It’s difficult to generalize about the value of the bill for any specific family because the amount of help largely depends on one’s income and work and family situation.
“There’s no quick way to assess the combined impact of all (the) changes without making a lot of assumptions about participation and employer behavior,” said Kayla Kitson, senior policy fellow at the California Budget & Policy Center.
The First Five Years Fund estimated last year there were 2.7 million children 5 and under in California, and 62% had all parents working. FFYF said the typical cost of outside the home child care for an infant in the state was about $19,000 annually.
Prior to the Big Beautiful Bill changes going into effect, the federal child and dependent care tax credit can reduce a family’s income tax bill by up to $600 if they had care expenses for one child and $1,200 if they had two. Because the credit is what is called “nonrefundable,” any amount greater than what a family owed in income taxes is effectively forfeited.
Through 2025, the credit is calculated using a formula that considers 20% to 35% of expenses (the percentages go down as incomes go up), up to a maximum of $3,000 in expenses for one child and $6,000 for two or more.
The average credit claimed by Californians ranged from $500 to $600. Generally, these care expenses must be incurred so that an individual can work or look for work.
Those who qualify are parents of a dependent under the age of 13, a spouse or dependent of any age who is incapable of self-care and who lives with you for more than half of the year, the Internal Revenue Service says. Available data indicate that in almost all cases the credit is claimed for children.
Beginning in 2026, the One Big Beautiful Bill Act permanently increases the credit rate for some families by up to 15 percentage points, taking it as high as 50% of expenses. The maximum dollar amount of expenses remains the same, $3,000 or $6,000. The law did not change that the credit remains nonrefundable.
The Tax Policy Center estimated that about 13% of households with children will benefit from the credit when the changes go into effect, roughly the same share as before the law was passed.
Among families that receive the credit, about two-thirds will see their credit increase from the changes according to Tax Policy Center estimates, with an average increase of $380. The lowest income families see virtually no benefit from the legislation.
“The bill’s changes provide modest support to a small share of families with children. I think many parents would agree that a few hundred more dollars a year is helpful. But when you look at what many families are paying out-of-pocket, there is still a lot of work to be done to improve tax benefits for child care.,” said Crandall-Hollick.
Potential breaks for employers
Other changes that would allow workers to set aside more of their income on a pre-tax basis in flexible spending accounts for care expenses, from $5,000 to $7,500, are also likely to provide the largest benefits to higher income workers.
Also in the bill are incentives for employers to provide child care.
Notable is an increase in a credit available to businesses that provide child care to their employees, going to $500,000 next year, and up to $600,000 for small businesses.
Crandall-Hollick noted that this change could “result in a true expansion in child care access that would not have otherwise occurred. Or it could reflect a larger windfall for businesses that, even without the credit, would have offered child care to recruit and retain talent.”
One potential glitch: The same one that caused an asterisk in the credit for families. The business break is available only to those that owe tax.
“Many businesses that aren’t yet turning a profit or are nonprofits cannot benefit from it. Other businesses may be uncertain whether to invest in providing child care if they don’t know if they will have enough employees who will want it,” said Crandall-Hollick.
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