Expanded Childcare Benefits in the One Big Beautiful Bill Act (OBBBA)
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, includes several provisions aimed at supporting working families and encouraging employer-sponsored childcare benefits. Two key changes stand out for employers looking to strengthen their benefits offerings while leveraging tax advantages:
Increased Employer-Provided Childcare Credit
Under prior law, employers could claim a credit of 25% of qualified childcare facility expenditures, with an annual cap of $150,000. OBBBA significantly enhances this incentive:
- Credit Percentage: Increased to 40% for standard employers and 50% for qualified small businesses.
- Annual Limit: Raised from $150,000 to $500,000 ($600,000 for small businesses).
Qualified expenditures include costs to:
- Build, acquire, or expand an on-site childcare facility, or
- Contract with a licensed third-party childcare provider.
The credit is available to employers of all sizes and entity types. Note that any claimed credit reduces the depreciable basis of the related asset or the amount of the deductible expense.
Higher Dependent Care Assistance Program (DCAP) Limits
OBBBA also increases the contribution limit for Dependent Care Assistance Programs:
- New limit: $7,500 (up from $5,000) for tax-free employer contributions made under a compliant IRC §129 plan.
When combined, these two provisions offer meaningful opportunities to enhance benefits packages while reducing tax liabilities.
How This Works in Practice
Consider the following example:
An employer contributes $7,500 to help offset an employee’s childcare costs under a written DCAP. If this support is provided via a contract with a licensed third-party provider:
- The employee may receive the benefit tax-free (if the plan is compliant).
- The employer could claim a 50% tax credit (if a small business), totaling $3,750.
- The reduced deduction creates a minor offset, but the net tax savings remain substantial — decreasing the employer’s effective benefit cost.
Time to Reevaluate Your Benefits Strategy?
With increased credit limits and expanded eligibility, the OBBBA creates strong incentives for businesses to invest in childcare benefits. These changes not only support employee retention and satisfaction but also offer real tax advantages.
If you’re considering new ways to support your team or enhance your benefits package, ClearPoint CPAs can help you evaluate your options and implement a compliant, cost-effective strategy.
Contact us to learn more about how these provisions could work in your unique context.
