TOPLINES: Child Care in the 2025 Tax Reconciliation Package

The final version of the 2025 tax reconciliation package (also known as the One Big Beautiful Bill Act – H.R.1) was signed into law on July 4th, 2025. The bill improves three pieces of tax policy that help make child care more affordable for working families with young children.

These changes:

• Expand the Child and Dependent Care Tax Credit (CDCTC), the only tax credit that specifically helps working parents offset the cost of child care (last updated in 2001);
• Improve the Employer-Provided Child Care Credit (45F), which supports businesses who want to help locate or provide child care for their employees (last updated in 2001);
• Grow Dependent Care Assistance Plans (DCAP), flexible spending accounts that allow working parents to set aside pre-tax dollars to pay for child care expenses (last updated in 1986).

In the U.S. two-thirds of children ages five and under are living in homes where all available parents are working. This means child care is not optional for most families – it’s essential. Child care-related tax breaks can help parents offset the cost of care, but they haven’t been updated in decades. The new law includes enhancements to all three provisions currently in the U.S. tax code.

Here’s a look:

The Child and Dependent Care Tax Credit (CDCTC)

The Child and Dependent Care Tax Credit is the only tax credit that directly helps low- and middle-income working parents keep more of what they earn to pay for child care.

Previously

• Working parents could claim a portion of their child care expenses on their annual taxes – up to $3,000 for one child and up to $6,000 for two or more children.
• Families then received a percentage of their claimed expense back as a tax credit. The amount was determined by a sliding scale, with families at lower income levels receiving a higher percentage back – starting at 35%.

The New Law

• Allows working parents to claim $3,000/$6,000 of their child care expenses. Families with the lowest incomes will now receive a maximum credit of 50% of their claimed child care expenses. That percentage gradually decreases as incomes rise.
• Will result in nearly 4 million families* – including dual-income households earning up to $206K and single-income households earning up to $103K – seeing an increased tax credit.

*Based on FFYF calculation from 2022 Internal Revenue Service filer data.

(On mobile devices, tables are best viewed horizontally.)

Details	Previously		The New Law		The Difference
Your family’s income:	Percentage of your claimed expense:	Maximum credit for two children:	Percentage of your claimed expense:	Maximum credit for two children:	This is a potential increase of …
$30-$34K	34%	$2,040	49%	$2,940	$900
$58-$62K	27%	$1,620	42%	$2,520	$900
$86-$150K	20%	$1,200	35%	$2,100	$900
$182-$186K	20%	$1,200	26%	$1,560	$360
$206K + above	20%	$1,200	20%	$1,200	SAME

Employer-Provided Child Care Credit (45F)

The Employer-Provided Child Care Credit (45F) supports businesses who want to help locate or provide child care for their employees.

Previously

• Businesses received a maximum tax credit of $150,000 (based on 25% of their qualified child care expenses). To receive the maximum credit, businesses needed to spend $600,000 on child care-related expenses.

The New Law

• Increases the maximum credit and credit rate, providing more of an incentive for businesses to participate. It also indexes the credit to inflation.
• Grows the credit rate and maximum credit specifically for small businesses.
• Simplifies the process for multiple employers to jointly contract with a qualified child care provider.

(On mobile devices tables are best viewed horizontally)

Details	Previously	The New Law
% of child care expenses covered	25%	40% for larger businesses, 50% for small businesses
Maximum Credit	$150,000	$500,000 for larger businesses $600,000 for small businesses
Allows small businesses to pool resources to contract with a qualified child care provider	No	Yes

Dependent Care Assistance Plans (DCAP)

Dependent Care Assistance Plans (DCAP) allow working parents to set aside pre-tax income to pay for child care in an employer-offered flexible spending account (similar to health spending accounts).

Previously

• Families whose employer participated in DCAP could deduct up to $5,000 per year from their pre-tax earnings to pay for dependent care expenses.

The New Law

• Increases the amount of pre-tax income families can deduct to $7,500 annually.

(On mobile devices tables are best viewed horizontally)

Support – Polling

Our polling shows that there is overwhelming bipartisan support for expanding all three child care tax credits.

• Support for expanded CDCTC in a national 2025 poll – 86% overall, with 83% of Republicans, 83% of Independents, and 91% of Democrats.
• Support for expanded 45F and DCAP in a national 2024 poll – 84% overall, with 76% of Republicans, 82% of Independents, and 93% of Democrats.