Beginning in 2026, the One Big Beautiful Bill Act increases the employer childcare tax credit for small businesses to 50 percent of qualified expenses, up to $600,000 per year. Even one-owner businesses can benefit—and the savings are substantial.
How the 50% Childcare Tax Credit Works
If you operate as a sole proprietor, you cannot claim the credit for your own childcare because you are not an employee. But if you hire your spouse as a legitimate W-2 employee, your business qualifies.
For example, on $20,000 in childcare expenses, the 50 percent credit results in a $10,000 dollar-for-dollar tax reduction. The remaining $10,000 is deductible, producing additional tax savings. After your spouse pays tax on the wages, the household comes out thousands of dollars ahead.
Solo S corporation owner-employees also win. Although a more-than-5-percent owner must include the childcare benefit in W-2 wages, the combination of the 50 percent credit plus the deduction outweighs taxes paid on wage inclusion, resulting in thousands in savings.
The key driver is the 50 percent credit. When paired with a deduction for the remaining expense, the math is strongly favorable, despite the benefit being taxable.
Learn more about OBBBA childcare credits in our detailed breakdown of the employer childcare credit changes for 2026.
How We Can Help
Sterling Tax and Accounting is here to help your business with tax planning! Our comprehensive approach to tax planning helps reduce your overall tax liability and keep more money in your pocket. If all your accountant does is file your taxes, chances are they are making you pay more than your fair share of taxes.
Learn how to proactively save on taxes by scheduling a call with our tax planning specialists.
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