A Simple Way to Cut Employee Turnover: Federal Child‑Care Tax Credits Explained

An update to tax laws could help your business retain talent that might otherwise leave because due to the cost of taking care of their kids.

EXPERT OPINION BY LAUREN GRAY, FREELANCE WRITER

Illustration: Inc; Photo: Getty Images

A new dollar figure on child care cost is shocking, but will not be surprising to parents already deep in the financial grind of modern caregiving. Families must earn more than $400,000 a year to cover child care costs for two children, according to a new LendingTree study. That eye-popping total is what it takes to meet the federal definition of “affordable,” which caps child care spending at no more than 7 percent of household income. It also represents nearly triple the actual average annual income of $145,000 seen in two-child households in America.

There is a way to blunt the staggering financial impact of these child care costs, but few small businesses are taking advantage of it, says Greg Crisci, head of corporate program at the childcare network Upwards, a company that partners with corporate clients—including Chobani and Panasonic—to offer child care benefits to employees. It’s worth learning about this tax credit soon, before some of your staff decide the cost of childcare is so high it no longer makes financial sense to work at a wage that barely covers those costs.

“The problem is that the price of care isn’t tracking with the actual rise in wages,” he says “You’re getting to this tipping point where people can’t afford care, or it’s becoming a wash—their paycheck basically covers the care and that’s it,” Crisci tells Inc. “Many aren’t settling for it to just be a wash anymore. They’re making different choices. And those choices show up on your payroll as turnover.”

Women are especially likely to cite child care concerns when leaving the workforce. A January, 2026 study by Catalyst suggests that of the nearly half a million women who left work last year, 42 percent of those who left voluntarily identified caregiving as the deciding factor.

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The tax break that could cut turnover

However, a new update to the Employer-Provided Child Care Tax Credit (Section 45F) could meaningfully change the calculation for companies on the fence. As of January, 2026, the value of this tax credit increased by more than three times, raising federal reimbursements for child care benefits from a $150,000 cap to up to $500,000. Qualified small businesses are also eligible for an additional $100,000 in reimbursements, and companies can receive 10 percent back on navigation services which help employees search for care. 

In other words, spend a million dollars on your employees’ child care costs, and you’ll receive at least $500,000 back—plus additional perks—from the federal government. “This is a game-changer for companies looking at care benefits,” Crisci says. 

Anita Williams Woolley, professor of organizational behavior at Carnegie Mellon University’s Tepper School of Business, notes that child care was already a wise employer investment before the tax credit update. Indeed, a 2024 Boston Consulting Group (BCG) and Moms First study found that childcare benefits deliver a staggering return on investment (ROI) of 90 percent to 425 percent. 

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