McLean County employers have more incentives to help employees access childcare, thanks to two federal tax code changes effective this year.
Tyler Cravens, president and CEO of the Bloomington-Normal Economic Development Council, said changes to the 45F employer tax credit help reimburse employers at a higher rate than in the past for providing employer childcare. The limit for dependent care flexible spending accounts has also increased, which means employees can set aside more of their income — pre-tax — to pay for childcare.
Cravens said these changes were implemented by Congress in 2025 for the 2026 tax year, in order to help more Americans access and afford childcare.
"I think it just shows that this is absolutely a bipartisan issue," Cravens said. "It's a critical workforce issue. These rising childcare costs are not local to just Bloomington-Normal. This is a nationwide issue, which is why you see it being addressed at the federal level."
Providing childcare for employees
The 45F tax credit allows an employer to deduct, as a business expense, the amount it spends to provide childcare to employees. The credit is not new, but in the past it's been rarely used. According to Congress, in the past. less than 1% of corporate tax returns claimed this credit.
To incentivize employers, Congress increased the maximum credit amount from $150,000 to between $500,000-$600,000, depending on the size of the business. Employers can also deduct up to 50% of their total cost of providing childcare, an expansion of the previous 25% limit. Cravens said these, and other smaller adjustments to this tax credit, were intended to make it more attractive to employers.
Cravens said eligible expenses can be used for construction, remodeling and additions for facilities to be able to provide on-site childcare for employees, "but it can also be used to contract that out to an existing provider."
This means 40%-50% of the cost the employer incurs to either build or contract out childcare will be returned back to it through the tax credit.
Cravens said an investment in building or contracting childcare will likely still require a substantial outlay of funds which would not be returned back in tax credits. But he also said employers in McLean County may want to consider it.
Childcare challenges have grown in the U.S., including in McLean County.
As the Bipartisan Policy Center explains, "Supporting childcare is not just good for parents, it’s good for business and the economy. Increased childcare support can attract and retain top talent, reduce turnover and boost employee morale, all improving a company’s productivity. Helping businesses directly invest in childcare benefits with incentives like 45F is a critical piece of the puzzle."
Still, Cravens said this tax credit won't be right for every business.
"Every employer's got to make their own calculation, and everybody knows their particular workforce best. And so this is really a case by case situation," he explained. "It makes the most sense for employers that are highly interested in talent attraction and retention, when employees that they have are experiencing situations where they need childcare services."
Cravens hopes the enhanced 45F tax credit may also spur new business ideas around Bloomington-Normal. He's part of a recently formed childcare alliance led by YWCA McLean County. That alliance also includes representatives from the City of Bloomington, Unit 5, Birth to Five Illinois, Illinois State University and Heartland Community College.
"We have several childcare centers vacant right now," Cravens said, referring to recently shuttered childcare options. He added there may be "capacity to actually bring in a new childcare provider that maybe would target businesses."
Saving for childcare expenses
Dependent Care Flexible Spending Accounts [FSA] are a savings vehicle which allows employees to set aside income, pre-tax, to pay for childcare expenses. This lowers their taxable income by the amount they contribute. This year the maximum annual amount employees can save in a dependent care FSA has increased from $5,000 to $7,500.
Compared to the 45F tax credit, dependent care FSAs are much more common benefits, Cravens said. However, there is room to expand the use of dependent care FSAs.
"I think the latest stat is that 43% of private sector workers have access to a dependent care flex spending account, but that's compared to 72% having access to a retirement benefit plan," Cravens said. "So there's still a gap there, and this is still something I think there's a lot of potential for employers to look at this and take it."
Cravens emphasized administering a dependent care FSA comes at a much lower cost to employers than some other employee benefits.
"This is a situation where a lot of the time, small businesses, for $50 to $100 a month, you can have a dependent care flex spending account program administered, and that's your expense. After that, the employee funds it."
Cravens said the relatively small employer investment goes a long way toward saving employees money.
"The average person utilizing that here locally would probably save somewhere in the neighborhood of 25% to 35% on their tax bill. Because it's not just income tax. It can also save you on your FICA [entitlement] taxes as well, so you've got to add those in there."
The future of employee benefits
Cravens said the general selection of employee benefits changes along with American culture. While remote work is not exactly a benefit, Cravens said many employees expect workplace flexibility post-COVID. Some employers have started offering student loan repayment assistance to their employees, he said.
"As student loans, as childcare, as these issues come to the forefront, I do think the law is responding. But just because the law changes doesn't mean employers adopt all these things," Cravens said. "It has to make sense for them. They have to be aware it's out there. I think yeah, you'll continue to see those sort of things rise into the mix of the traditional retirement and healthcare."
