A new analysis from the U.S. Congress Joint Economic Committee (JEC) reveals that child care tax incentives remain chronically underutilized, even as the average annual cost of care reaches $13,184 per child. The report, released in early 2025, highlights a significant gap between available federal tax relief and actual usage by both employers and employees.
According to the JEC report, only 13% of private-sector workers have access to employer-provided child care benefits. Furthermore, just 12% of taxpayers with children claim the Child and Dependent Care Tax Credit (CDCTC), despite broad eligibility. The CDCTC allows families to offset a portion of their care expenses against income tax, yet the uptake remains low.
Three Key Tax Mechanisms
The JEC report outlines three primary tax incentives designed to reduce child care costs. The first is Section 45F of the Internal Revenue Code, which permits businesses to deduct 40% of qualifying child care expenses from corporate income tax, up to $500,000 annually. For small businesses, the deduction rises to 50% with a cap of $600,000. Despite these potential savings, an analysis of 2016 IRS filing data cited in the report shows that fewer than 1% of corporate returns utilized the 45F credit.
The second mechanism is the Dependent Care Assistance Program (DCAP), which allows employees to set aside up to $7,500 of pre-tax income annually for eligible care expenses. However, less than half of private-sector workers have access to a DCAP account, per the JEC report. The third is the CDCTC itself, which provides a maximum annual benefit of $1,050 for a household earning $70,000 with one child paying average care costs.
Legislative Response
The report was released alongside the Child Care Tax Benefit Outreach and Assistance Act, a bipartisan bill introduced by Senator Maggie Hassan and Senator Dan Sullivan. The legislation would create a dedicated Business Child Care Liaison at the IRS to provide outreach and education to employers about existing credits. While the measure stops short of addressing structural shortfalls, it could meaningfully increase uptake of these underused tax breaks.
Employer-Side Data
Separate research from Boston Consulting Group (BCG) and nonprofit Moms First provides financial advisors with compelling employer-side data. The 2024 BCG study, which surveyed approximately 1,000 employees and conducted financial analysis at five U.S. companies—including Etsy, Fast Retailing, Steamboat Ski Resort, Synchrony, and UPS—found that every employer studied achieved a positive return on child care investment, ranging from 90% to as high as 425%. Retaining as few as 1% of eligible employees was sufficient to cover the full annual cost of benefits.
Inadequate child care costs U.S. employers an estimated $13 billion a year in lost productivity, according to the BCG/Moms First report. Working parents surveyed said they avoided up to 16 absences per year when reliable child care was in place. Meanwhile, the 2024 Financial Concerns Report by Lincoln Financial found that 68% of surveyed consumers were likely to seek out or discuss ways to pay for child care, with Millennials most concerned—37% identified it as a priority.
The broader economic implications are significant. Figures from the Bipartisan Policy Center, cited in the JEC report, estimate that the lack of affordable and reliable child care will cost the U.S. economy as much as $329 billion over the next ten years. For financial advisors, these trends underscore the importance of discussing child care costs with clients, especially as wealth managers report a surge in client demand for 'news-proof' portfolios amid persistent volatility. Additionally, the strain on household budgets echoes findings from national debt relief surveys that show 88% of clients hit by fuel costs and 56% citing money as a top relationship strain.
