For employers, child care can quickly become a business issue.
When an employee loses reliable care, the impact doesn’t stop at home. It can affect attendance, schedules, productivity and, ultimately, whether that employee can stay in the workforce. For businesses already competing for talent, those disruptions matter.
What has changed in 2026 is the financial equation for employers that want to do something about it.
The federal Employer-Provided Child Care Tax Credit under Internal Revenue Code Section 45F has been significantly expanded, giving businesses a stronger incentive to consider child care as part of their workforce strategy. And employers have more options than many realize.
That creates an opportunity to ask a different question. Instead of simply asking whether your company can afford to support child care, it may be time to ask what kind of support makes sense for your workforce and how available tax incentives affect the cost.
The Child Care Conversation Has Become a Business Conversation
Employers across Tennessee are looking for practical ways to attract and retain people. Compensation matters. So do career opportunities, flexibility and culture. But those benefits can only go so far when an employee doesn’t have dependable care for a child.
That’s why child care deserves a place in broader workforce planning.
As Jim Meade, CEO and Managing Shareholder of LBMC, put it when LBMC announced its partnership with Tennesseans for Quality Early Education (TQEE):
“Child care is not just an HR issue — it’s a business strategy issue. Employers lose talent when child care falls apart.”
The challenge is that recognizing the problem and deciding what to do about it are two very different things.
A manufacturer with a large workforce at one location may have different needs than a professional services company with employees spread across several communities. A growing middle-market business may have a different budget than a large employer. Rural and urban employers may face very different child care availability.
There isn’t one answer. And increasingly, there doesn’t have to be.
Employers Have More Options Than Building a Child Care Center
One of the biggest misconceptions about employer-supported child care is that a company has to build a day care center to participate.
That can be one approach, but it isn’t the only one.
Depending on the circumstances, employers may consider relationships with existing child care providers, shared facilities with other businesses, third-party arrangements that connect employees with providers, or resource and referral services that help employees locate care.
That flexibility matters because it gives businesses the ability to start with the workforce problem rather than a predetermined solution.
Where are employees experiencing the greatest difficulty? Is availability the problem? Cost? Finding providers near a worksite? Does the challenge affect one location or the broader workforce?
Those questions should come before deciding what to build, fund or contract for.
The Expanded 45F Credit Changes the Economics
Starting with the 2026 tax year, the federal government substantially increased the Section 45F credit available for qualifying employer-provided child care expenditures.
The maximum annual credit increased from $150,000 to $500,000, with a maximum of $600,000 for eligible small businesses. The credit rate for qualified child care facility expenditures also increased from 25% to 40%, or 50% for eligible small businesses.
Those are significant changes.
But the numbers alone shouldn’t drive the decision. The more useful exercise is determining what an employer is trying to accomplish and then understanding how Section 45F could affect the economics of that particular approach.
That is where workforce planning and tax planning need to connect.
For a complete explanation of qualifying expenditures, credit calculations, limitations and other requirements, see LBMC’s Section 45F: Employer-Provided Child Care Tax Credit resource page.
Start With the Workforce Need, Then Model the Options
For employers considering child care support, the planning process does not have to begin with a major capital investment.
It can begin with data.
Look at the workforce. Talk with employees. Identify where child care is contributing to absenteeism, scheduling challenges, recruiting difficulties or turnover. Consider whether those challenges are concentrated in particular locations, shifts or employee populations.
Then evaluate possible responses.
A business might find that partnering with an existing provider makes more sense than developing a facility. Several employers in one area may find value in a shared solution. Another company may determine that helping employees locate available care is the most practical starting point.
Once those options are on the table, tax advisors can model how Section 45F may apply and help the organization compare potential costs and benefits.
The important point is sequencing. Bringing tax considerations into the conversation early can help an employer evaluate alternatives before commitments are made.
A Tennessee Partnership Designed to Help Employers Move From Interest to Action
That need for practical implementation is behind LBMC’s partnership with Tennesseans for Quality Early Education.
TQEE has been working with employers and communities on the child care challenge across Tennessee. LBMC now serves as TQEE’s official 45F Tax Credit Advisory Partner, bringing tax experience into those workforce conversations.
It’s an important combination because neither workforce strategy nor tax planning operates in isolation.
TQEE President and CEO Blair Taylor summarized the opportunity well: “There is no one-size-fits-all answer, [but] there is an on-ramp for almost every budget.”
For employers, the goal isn’t to offer child care simply because a tax credit exists. It’s to determine whether child care support can solve a real workforce problem and, if so, structure that investment thoughtfully.
What Should Employers Do Next?
If child care is affecting recruiting, retention, attendance or productivity in your organization, start the conversation before deciding on a solution.
Bring together the people responsible for HR, benefits, finance and tax. Identify the workforce need. Consider several possible approaches. Then model the financial implications, including the potential Section 45F benefit.
The expanded credit creates a stronger financial tool. The real opportunity is using that tool as part of a workforce strategy that fits your people, your business and your community.
Ready to evaluate the possibilities? Visit LBMC’s Employer-Provided Child Care Tax Credit resource page for detailed information about Section 45F, qualifying expenditures and credit requirements, or connect with an LBMC 45F Tax Advisor to discuss your organization’s options.
