Sponsors (4)
The bill incentivizes employers to raise child care worker pay and encourages rural child care investment through a payroll tax credit, but its eligibility rules and nonrefundable design exclude many small or low‑margin providers and it reduces federal revenue.
Employers of eligible child care facilities who raise average hourly wages can claim a payroll tax credit (5% generally, 7% in rural areas), lowering their payroll tax liability and reducing the net cost of increasing pay.
Child care workers at participating facilities are likely to see higher average wages because employers must raise wages year-over-year to qualify for the credit, improving worker pay and potentially care quality.
Rural child care facilities get a larger credit rate (7%), creating a stronger incentive to invest in and expand rural child care capacity, which can improve access for rural families.
Providers that cannot or do not raise average hourly wages year-over-year, and very small or home-based providers that do not meet the six-child minimum or state/local requirements, are excluded from the credit—limiting reach and leaving many small providers and the families who rely on them without support.
The credit is nonrefundable, so employers with little or no federal tax liability (including startups, low-profit providers, and some nonprofits) receive limited or no immediate cash benefit, reducing usefulness for providers most in need of funds to raise pay.
Providing the tax credit reduces federal revenue, which could increase budget deficits or crowd out other federal spending unless offsets are identified.
Based on analysis of 2 sections of legislative text.
Creates a nonrefundable employer tax credit for year-over-year increases in average hourly child care wages (5% or 7% in rural areas).
Official title: To amend the Internal Revenue Code of 1986 to provide a credit for increasing wages paid to child care providers.
Introduced March 19, 2026 by Linda T. Sánchez · Last progress March 19, 2026
Creates a new employer tax credit for businesses that increase the hourly wages they pay to child care workers. The credit equals the lesser of (a) 5% of qualified child care wages (7% for employers in designated rural areas) or (b) the year-over-year increase in qualified child care wages, and can only be claimed if the employer's average hourly child care wage rises from the prior year. The credit is nonrefundable, becomes part of the general business credit rules, includes definitions and eligibility requirements for child care workers and facilities, allows an election out, and applies to taxable years beginning after enactment.