Federal Tax Benefits
Tax Benefits to Support Employee Child Care
On Site Child Care
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).
Contracting for Child Care
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).
Help Families Find Child Care
Businesses can receive a 10% tax credit for contracting with Child Care Resource and Referral agencies, (in Utah, contact a Child Care Resource Agency), to help families find child care that works within their budget.
Employer Tax Credit for Paid Family and Medical Leave (IRS Section 45S)
Federal Law: The Family and Medical Leave Act (FMLA) of 1993 requires employers who employ 50 or more employees to provide employees with up to 12 weeks of unpaid family and medical leave. In 2017, a temporary employer tax credit for family and medical leave was enacted, which was scheduled to expire on January 1, 2026. Legislation was enacted in 2025 which made the employer FMLA tax credit permanent. The tax credit was also modified to strengthen access to paid FMLA by employees.
Employer FMLA Tax Credit. Employers can receive a tax credit based on wages paid for FMLA or premiums paid by employers for insurance policies that provide paid FMLA. Employers select whether to claim the credit based on wages paid or premiums paid but cannot claim the credit for both. With regard to the option to utilize the tax credit against insurance premiums, employees do not actually have to be on FMLA for employers to qualify for the credit.
Tax Credit Rates. The tax credit is equal to 12.5% of the amount of eligible wages paid to qualifying employees during any period in which such employees are on FMLA IF the rate of payment under the program is 50% of the wages normally paid to an employee. The credit is increased by .25 percent points (but not above 25%) for each percentage point by which the rate of FMLA payment exceeds 50%. Similar to the way the credit works for FMLA paid leave, employers can choose to receive a tax credit under the same rules for insurance premiums paid (as long as the insurance policy specifies that paid leave exceeds 50% of the wages normally paid). The maximum amount of the FMLA tax credit is 12 weeks of paid leave.
Note: No double benefits. If an employer chooses to base the tax credit on insurance premiums rather than paid leave, no deduction is allowed for the portion of premiums paid which is equal to the portion of the paid FMLA tax credit taken (i.e., employers can’t take both).
Eligible Employers. The tax credit is available to any employer that has a written policy in place that allows all qualifying employees at least 2 weeks of annual paid FMLA (which is prorated for part-time employees). The policy must provide that FMLA is paid at 50% or more of the wages normally paid to the employee. While the Family and Medical Leave Act requires employers with 50 or more employees to offer unpaid FMLA, the employer FMLA tax credit can be taken by any employer (as long as the employer has a written FMLA policy).
Employer Wage Deductions. An employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit.
Qualifying Employees. Qualifying employees include those working for the employer for at least a year or at election by the employer, at least 6 months.
FMLA Paid Leave. If an employer provides paid leave as vacation leave, personal leave, or other medical or sick leave (unless the medical or sick leave is specifically designated as FMLA), such paid leave does not qualify for the FMLA tax credit. The FMLA law specifically covers:
Employer FMLA Tax Credit. Employers can receive a tax credit based on wages paid for FMLA or premiums paid by employers for insurance policies that provide paid FMLA. Employers select whether to claim the credit based on wages paid or premiums paid but cannot claim the credit for both. With regard to the option to utilize the tax credit against insurance premiums, employees do not actually have to be on FMLA for employers to qualify for the credit.
Tax Credit Rates. The tax credit is equal to 12.5% of the amount of eligible wages paid to qualifying employees during any period in which such employees are on FMLA IF the rate of payment under the program is 50% of the wages normally paid to an employee. The credit is increased by .25 percent points (but not above 25%) for each percentage point by which the rate of FMLA payment exceeds 50%. Similar to the way the credit works for FMLA paid leave, employers can choose to receive a tax credit under the same rules for insurance premiums paid (as long as the insurance policy specifies that paid leave exceeds 50% of the wages normally paid). The maximum amount of the FMLA tax credit is 12 weeks of paid leave.
Note: No double benefits. If an employer chooses to base the tax credit on insurance premiums rather than paid leave, no deduction is allowed for the portion of premiums paid which is equal to the portion of the paid FMLA tax credit taken (i.e., employers can’t take both).
Eligible Employers. The tax credit is available to any employer that has a written policy in place that allows all qualifying employees at least 2 weeks of annual paid FMLA (which is prorated for part-time employees). The policy must provide that FMLA is paid at 50% or more of the wages normally paid to the employee. While the Family and Medical Leave Act requires employers with 50 or more employees to offer unpaid FMLA, the employer FMLA tax credit can be taken by any employer (as long as the employer has a written FMLA policy).
Employer Wage Deductions. An employer must reduce its deduction for wages or salaries paid or incurred by the amount determined as a credit.
Qualifying Employees. Qualifying employees include those working for the employer for at least a year or at election by the employer, at least 6 months.
FMLA Paid Leave. If an employer provides paid leave as vacation leave, personal leave, or other medical or sick leave (unless the medical or sick leave is specifically designated as FMLA), such paid leave does not qualify for the FMLA tax credit. The FMLA law specifically covers:
- the birth of a son or daughter of the employee and in order to care for such son or daughter.
- the placement of a son or daughter with the employee for adoption or foster care.
- in order to care for the spouse, or a son, daughter, or parent, of the employee, if such spouse, son, daughter, or parent has a serious health condition.
- a serious health condition that makes the employee unable to perform the functions of the position of such employee.
- any qualifying emergency health need arising because the spouse, or a son, daughter, or parent of the employee is on covered active duty (or has been notified of an impending call or order to covered active duty ) in the Armed Forces. (Service member family leave offers 26 weeks of leave during a 12-month period to care for a service member).
Learn More.
The Internal Revenue Service has not yet updated the Section 45S Family and Medical Leave policy page. However, once updated, modifications reflecting the 2025 law will be made on this page. The best source of information is the 45S FMLA tax credit law.