To amend the Internal Revenue Code of 1986 to provide a credit for increasing wages paid to child care providers.
- Sponsor
- Rep. Sánchez, Linda T. [D-CA-38]
- Committees
- Ways and Means Committee (primary)
- Last action
- Mar 19, 2026
Bottom line
The bill creates a new federal tax credit to incentivize child care facilities to increase wages for their providers, aiming to boost the child care workforce and supply, with an enhanced benefit for rural areas.
What it actually does
This bill amends the Internal Revenue Code of 1986 to establish a new Child Care Supply Credit, a general business credit for employers operating eligible child care facilities. The credit is equal to a percentage (5% generally, 7% in rural areas) of the increase in qualified child care wages paid in a taxable year compared to the preceding year, provided the employer's average hourly child care wage also increased. It also makes this credit eligible for elective payment (direct pay) and prevents double benefits with other credits.
Proponents argue
Supporters argue this credit will help address the critical shortage of child care providers by making these jobs more attractive, improving retention, and stabilizing the child care sector, particularly in underserved rural areas. By encouraging higher wages, it aims to improve the quality and availability of child care, benefiting working families and the broader economy.
Opponents contend
Critics might argue that a tax credit is an inefficient mechanism to address wage issues, potentially benefiting employers more than workers, or that it could lead to unintended consequences like facilities manipulating wage structures to qualify without genuinely improving worker compensation significantly. Some may also raise concerns about the potential cost to the federal budget and the administrative burden on the IRS.
The bill is very short and clearly written, making it highly accessible for a reader to understand its core mechanism and intent within a few minutes.
Section 1(a), new Section 45BB(a)
Child Care Supply Credit Establishment
This provision establishes a new general business credit, the 'Child Care Supply Credit,' for employers. The credit amount is calculated as the lesser of an 'applicable percentage' (5% or 7%) of qualified child care wages paid, or the amount by which current year qualified child care wages exceed those of the preceding year. This means the credit is specifically tied to *increases* in wages.
Supporters argue
Proponents argue this credit directly incentivizes child care businesses to invest in their workforce, which is crucial for retaining staff and improving the quality of care. It provides a tangible benefit to employers for making a positive change.
Critics contend
Opponents might contend that linking the credit to wage increases could be complex to administer and verify, potentially leading to loopholes or insufficient impact on actual worker take-home pay if employers find ways to qualify without substantial, sustained wage growth.
Tradeoffs
The provision balances the desire to incentivize wage increases with the need to limit the credit to actual growth in wages, preventing facilities from claiming a credit for existing wage levels.
Section 1(a), new Section 45BB(b)
Requirement for Average Hourly Wage Increase
For an employer to qualify for the credit, their average hourly child care wage for the current taxable year must exceed their average hourly child care wage for the preceding taxable year. This ensures that the credit is only granted when there is a demonstrable increase in the average compensation level for child care workers.
Section 1(a), new Section 45BB(c)
Applicable Percentage for Rural Areas
The standard credit percentage is 5%. However, for qualified child care wages paid for employment at an eligible child care facility located in a 'rural area,' the applicable percentage is increased to 7%. A rural area is defined by reference to section 101(a)(35) of title 23, United States Code, which generally excludes urbanized areas and urban clusters.
Section 1(a), new Section 45BB(d)
Definitions of Key Terms
This section defines critical terms for the credit: 'qualified child care wages' are wages paid to 'qualified child care workers'; 'wages' use the Section 3306(b) definition (without dollar limits) and exclude amounts used for other credits; 'qualified child care worker' is an employee at an eligible facility providing child care services; 'eligible child care facility' provides services for at least 6 individuals, receives fees/payments/grants, and complies with all applicable state/local laws; and 'child care services' means care, education, protection, supervision, or guidance to children.
Section 1(c), Section 6417(b) amendment
Elective Payment for Child Care Supply Credit
This provision amends Section 6417(b) of the Internal Revenue Code to include the new Child Care Supply Credit (Section 45BB(a)) among the credits eligible for 'elective payment.' This means that an eligible entity can elect to treat the amount of the credit as a payment against federal income tax, effectively making the credit refundable, even if the entity has no tax liability.
Section 1(d), Section 280C(a) amendment
Denial of Double Benefit
This provision amends Section 280C(a) of the Internal Revenue Code to specify that the amount of the Child Care Supply Credit (Section 45BB(a)) cannot be taken into account for purposes of determining any deduction for wages or salaries. This prevents an employer from claiming both a tax credit and a deduction for the same wage expenses, ensuring no 'double dipping' of federal tax benefits.
The definition of 'rural area' is not explicitly stated but is incorporated by reference to section 101(a)(35) of title 23, United States Code.
Section 1(a), new Section 45BB(c)(2)(B)
Why it matters:This is standard legislative practice to avoid redundancy and ensure consistency with existing definitions across federal law, rather than an attempt to obscure.
Case for: Using an existing, established definition promotes consistency across federal programs and avoids creating new, potentially conflicting definitions of 'rural.'
Case against: It adds a layer of complexity for a casual reader or a small business owner trying to determine their eligibility, requiring external research.
Estimated impact: Determines which child care facilities qualify for the higher 7% credit rate, potentially shifting significant amounts of credit benefit to specific geographic areas.
Rules similar to paragraphs (2) and (3) of section 51(j) shall apply for purposes of the election to have the credit not apply.
Section 1(a), new Section 45BB(e)(2)
Why it matters:This is standard legislative drafting to apply existing procedural rules to a new credit, ensuring consistency in tax administration rather than an attempt to hide information.
Case for: Leveraging existing procedural rules simplifies tax administration and provides taxpayers with familiar processes for managing their tax elections.
Case against: It requires familiarity with other sections of the tax code to fully understand the implications of electing out of the credit, which can be a barrier for non-specialists.
Estimated impact: Governs the administrative process for taxpayers who choose not to claim the credit, which is likely a small subset of eligible entities.