Investing in child care benefits is good business

Beginning in 2026, businesses can receive a federal tax credit equal to 40% of expenses for employee child care. The maximum credit allowed per year is capped at $500,000. (Small businesses are allowed 50% of expenses and the cap is $600,000 annually).

Beginning in 2026, businesses can contract with a child care program to provide child care for their employees or help make it more affordable. Similar to on-site child care, businesses can receive a tax credit of up to 40% of expenses, with an annual cap set at $500,000. (Small businesses are allowed 50% of expenses and the cap is $600,000 annually).

Arkansas offers income tax credits to encourage employers to invest in workplace child care. Employers that qualify for the sales and use tax refund available for employer-sponsored child care facilities may also be eligible for an income tax credit equal to 3.9% of the annual salaries paid to employees who work exclusively in the child care facility; or A $5,000 income tax credit during the first year the employer establishes a child care facility for employees.

When multiple employers jointly develop and operate a child care facility, each employer may claim a credit based on the salaries of its own eligible child care employees. The first-year $5,000 credit is prorated based on each employer’s share of the facility’s initial construction and equipment costs.

To qualify, the child care facility must operate as an employee benefit rather than a profit center. Revenue generated by the facility cannot exceed its direct operating costs, including food and beverages, child care staff wages and related payroll taxes, and the materials and supplies necessary to operate the facility.

Arkansas allows employers to recover certain costs associated with establishing a workplace child care facility. A business that operates, or contracts for the operation of, a child care facility primarily for the benefit of its employees may be eligible for a refund of the sales tax paid on qualifying construction materials and furnishings used to build and equip the facility.

To qualify, the facility must be licensed under the Arkansas Child Care Facility Licensing Act and certified as operating an approved early childhood program.

The Arkansas Department of Education, Division of Elementary and Secondary Education, Office of Early Childhood, administers the School Readiness Assistance Program – child care subsidies for families to help make child care more affordable. Family eligibility for the School Readiness Assistance Program is based on income and family size. Families with income up to 85% of the state median income level are eligible. For a family of four, this is $90,381.

Arkansas Better Chance serves low-income three and four-year old children in areas at high-risk for academic failure with high-quality pre-k services. The ABC program models are offered in child care centers, family child care homes, and through home-visiting programs.

If an employee has paid for child care at an Arkansas licensed / registered Better Beginnings program, and they meet the requirements for claiming the Federal Child Care Tax Credit, they may qualify for a refundable state tax credit. For more information, parents can call 501-320-6161 or email betterbeginnings@dhs.arkansas.gov.

The Child and Dependent Care Tax Credit (CDCTC) helps working families offset the cost of child care so parents can remain in the workforce. It is the only federal tax credit created specifically to help working parents pay for child care.

Eligible families can claim a percentage of qualifying child care expenses for children under age 13 or eligible adult dependents.

In July 2025, the CDCTC was permanently expanded for the first time since 2001. Under the updated law, lower-income families may receive a tax credit equal to up to 50% of qualifying child care expenses. The expansion is expected to benefit approximately four million families, increasing the average tax benefit by about $900 to approximately $2,100.