Tax credit for child care employers tied to worker pay raises

What does this do?

HR 8023 creates a federal tax credit for licensed child care businesses that increase their workers' average hourly wages compared to the prior year. The credit equals 5% of total wages paid to qualifying child care staff, or 7% for employers in rural areas. In some cases, employers may receive the credit as a direct government payment rather than a reduction in taxes owed.

Who does it affect?

Eligible employers are licensed child care facilities serving at least six children that receive some form of payment, including parent fees, government program funds, or grants. Workers who qualify are employees at those facilities who directly provide care, education, or supervision to children.

Why does it matter?

By tying the credit to actual wage increases, the bill creates a financial incentive for employers to raise pay rather than maintain existing wage levels. Higher wages in child care could affect worker recruitment and retention at facilities, which may influence the availability of child care slots for families.

What does it cost, and who pays?

• 5% credit on qualifying wages
• 7% credit for rural employers
• Direct payment option available