Businesses that offer childcare services to their employees will see a notable increase in the employer-provided childcare tax credit starting with the 2026 tax year, according to new guidance from the Internal Revenue Service.
The IRS announced in Revenue Procedure 2025-32 that the maximum tax credit for employer-provided childcare will rise from $150,000 to $500,000. For eligible small businesses, this cap increases further to $600,000. These new limits apply for all tax years after December 31, 2025 and will be adjusted annually based on inflation.
Additionally, the rate used to calculate the credit will increase. The current rate of 25% of an employer’s qualifying childcare expenses will move up to 40%. Qualifying small businesses can claim a higher rate of 50%.
These changes are part of the One Big Beautiful Bill Act (OBBBA), which was enacted in July. The OBBBA includes several other updates affecting more than sixty tax provisions.
Other changes highlighted by the IRS include adjustments to standard deductions for taxpayers. In tax year 2026, married couples filing jointly will have a standard deduction of $32,200. Single taxpayers and married individuals filing separately will have a deduction of $16,100. Heads of households can claim a deduction of $24,150.
For tax year 2025, before these new amounts take effect, married couples filing jointly will see their standard deduction rise to $31,500; single taxpayers and those married but filing separately can claim $15,750; heads of households may deduct $23,625.
Marginal income tax rates remain largely unchanged for 2026. The top individual rate is set at 37% for single filers earning over $640,600 and for married couples filing jointly earning above $768,700. Other rates are structured as follows: incomes over $256,225 ($512,450 joint) are taxed at 35%; over $201,775 ($403,550 joint) at 32%; over $105,700 ($211,400 joint) at 24%; over $50,400 ($100,800 joint) at 22%; and over $12,400 ($24,800 joint) at 12%. The lowest bracket is set at a rate of 10% for single incomes up to $12,400 or joint incomes up to $24,800.
The IRS news update provides further details on these changes as well as additional annual inflation adjustments stemming from recent legislation.
