A new Pennsylvania tax credit makes employer child care contributions effectively free—but most child care owners haven't heard about it yet.
Most Pennsylvania child care owners don't realize that employers in their state now have a powerful financial incentive to help employees pay for child care—and that incentive could drive new business directly to their doors.
HB2748, which amends Pennsylvania's tax code, introduces a 100% employer tax credit for child care contributions. Here's what that means in plain terms: when an employer contributes money toward an employee's child care costs, that employer can claim a state tax credit equal to the full amount of that contribution, up to $10,000 per employee per year.
Under Section 1903-K(c)(2) of the Pennsylvania tax code (as amended by Section 2 of HB2748), a "qualified employer taxpayer" can claim a tax credit that covers 100% of their child care contributions. The credit is capped at $10,000 per employee annually. In practical terms, this makes employer child care assistance dollar-for-dollar free after the tax credit is applied.
There is a statewide annual cap of $10,000,000 in total credits available. If demand exceeds that amount, credits are reduced proportionally across all applicants.
This credit applies to employers—not directly to child care providers. However, the incentive matters significantly to child care business owners because it removes a major cost barrier for employers considering child care benefits. Employers who previously couldn't justify the expense may now offer tuition assistance, subsidies, or direct payments to child care providers on behalf of their employees. That translates to more stable revenue and potentially higher enrollment for child care centers and family providers.
The credit is available to employers whose taxable years begin after December 31, 2025. The legislation took effect immediately upon enactment, giving employers and providers time to plan ahead.
If you operate a child care business in Pennsylvania, this is worth monitoring. As employers become aware of this credit, some may begin offering child care benefits they previously couldn't afford. This could mean:
• Employers reaching out to negotiate direct-pay arrangements or tuition assistance programs
• Increased demand from employees whose employers are now subsidizing care
• Opportunities to partner with employers on benefit packages
It's worth staying informed about how employers in your region begin using this credit and whether any are looking to establish relationships with local providers.
For the full text of HB2748, including Section 2 (amending Section 1903-K(c)(2), found on page 2, lines 27-30), consult the Pennsylvania General Assembly website or your tax advisor to understand how this credit might affect your business relationships with local employers.
Source: HB2748, Section 2, amending Section 1903-K(c)(2); Section 3 (effective date).