Offering Childcare Benefits for Employees? Georgia Tax Credits May Help Offset the Cost

Key Takeaways:

• Georgia employers that provide or sponsor qualifying childcare, including payments made directly to a third-party provider, may receive a state income tax credit equal to 75% of qualifying costs.
• Beginning in 2026, employees may exclude up to $7,500 of employer-provided dependent care assistance from their income.
• A separate federal credit may also apply, so employers should evaluate the Georgia and federal rules together when designing a program.

Childcare has become a significant expense for working families and, increasingly, an issue for employers competing for talent.

In 2025, the national average annual price of childcare was $13,184, equal to approximately 10% of median income for a two-parent household, according to Child Care Aware of America’s 2025 Price & Supply report. For two children in center-based care, the cost exceeded median rent in every state for which data was available and exceeded median mortgage payments in most states.

For Georgia employers, that creates an interesting opportunity: help employees pay for childcare while potentially receiving a Georgia income tax credit for a substantial portion of the cost.

The Georgia Employer Childcare Tax Credit: Up to 75% of Qualifying Costs

Section 48-7-40.6 of the Official Code of Georgia Annotated provides a tax credit to employers that provide or sponsor qualifying childcare. For employers that do not operate their own childcare facility, the provision can apply to qualifying payments made to a third-party childcare provider. The credit is for 75% of qualifying costs, subject to the applicable Georgia income tax liability limitation.

Because the state is essentially reimbursing a material amount of the costs, this provision becomes particularly interesting as an employee benefit strategy. A benefit that is worth $10,000 to an employee may have a very different economic cost to an employer once available tax credits are taken into account.

How to Qualify for the Georgia Employer Childcare Tax Credit

The concept is relatively straightforward but does require formal implementation of a program that meets the prescribed parameters.

• The provider must qualify. The childcare provider must be a qualified Georgia childcare facility or provider.
• The employer must pay the provider directly. The program should be structured so that the employer makes payments directly to the childcare provider on the agreed schedule.
• The child must qualify. Eligible children generally must be younger than 13 and qualify as dependents of participating employees.
• The arrangement should be documented. Employers should obtain the provider’s Georgia licensing or approval documentation and federal employer identification number (EIN) and put the arrangement in writing, including the company policy, covered services, participating employees, enrollment process and payment obligations.

How Dependent Care Assistance Benefits Employees

There may also be a compounded benefit on the employee side.

Beginning in 2026, Section 129 of the Internal Revenue Code (IRC) permits an employee to exclude up to $7,500 of qualifying employer-provided dependent care assistance from gross income, subject to the requirements and limitations of the statute.

The full amounts paid or incurred for dependent care benefits, including amounts above the exclusion limit, are reported in Box 10 of Form W-2. However, the first $7,500 of those benefits is generally tax-free to the employee for federal and Georgia income tax purposes.

This creates the possibility of a highly efficient benefit: the employee can potentially receive thousands of dollars of childcare assistance on a tax-advantaged basis while the employer may qualify for a Georgia tax credit based on the expenditure.

How the Federal Employer-Provided Childcare Credit Fits In

Federal tax law also provides an employer-provided childcare credit, under IRC Section 45F, that may apply to qualifying arrangements. That credit operates separately from the Georgia credit, so employers establishing a program should evaluate the federal opportunity at the same time rather than considering the Georgia credit in isolation.

The potential interaction among the Georgia employer credit, federal employer childcare provisions and the employee’s Section 129 exclusion also makes designing the program correctly at the outset important.

When a Childcare Benefit Makes Sense for Georgia Employers

Most employee benefits represent a pure cost to an employer. A properly structured childcare program may be different.

For Georgia businesses looking for ways to attract and retain employees, the ability to help with one of a working family’s largest expenses while potentially receiving a 75% Georgia tax credit on qualifying costs deserves a closer look.

The opportunity can be particularly compelling when the employer:

• Already has employees paying significant childcare expenses
• Has sufficient Georgia income tax liability to use the credit
• Wants to provide a benefit employees can easily recognize and value

For the right employer, childcare assistance can turn dollars the business was willing to spend on its workforce into a more tax-efficient investment in that workforce.

Considering a childcare benefit for your employees? The Moore Colson Tax team can help you evaluate the Georgia and federal credits and design a program that fits your business.

FAQ

How do employers claim the Georgia employer childcare tax credit?

Employers claim the credit by filing Georgia Form IT-CCC100 with the entity’s Georgia tax return for the year expenses were incurred.

Can owners of pass-through entities use the Georgia employer childcare tax credit?

Yes. For pass-through entities not electing PTE, the credit is claimed by the entity and may then be passed through to the owners to offset Georgia liability on their individual returns

Does Georgia offer other childcare tax credits for employers?

Yes. Georgia also offers the Georgia Employer Childcare Expense Credit, which may be available for employers that do not meet the qualifications for the Georgia employer childcare tax credit described above.

What is a dependent care assistance program?

A dependent care assistance program (DCAP) is a written employer plan that provides child or dependent care benefits employees may exclude from income under IRC Section 129. These plans generally must also meet nondiscrimination rules.

How does employer childcare assistance interact with a dependent care FSA or the dependent care credit?

Employees can participate in a dependent care flexible spending account (FSA) only to the extent the employer’s childcare assistance does not exceed the federal exclusion limit. Employees may also be able to claim the federal child and dependent care credit on childcare expenses that were not paid by the employer and not excluded from their income.

How much is the federal employer-provided childcare credit?

Under the One Big Beautiful Bill Act (OBBBA), the IRC Section 45F credit increased beginning in 2026 to 40% of qualified childcare expenditures, up to $500,000 per year. Eligible small businesses may claim 50%, up to $600,000. The maximum amounts will be adjusted for inflation annually. Employers claim the credit on Internal Revenue Service (IRS) Form 8882.

How do childcare challenges affect Georgia employers?

A 2025 analysis from the Georgia Early Education Alliance for Ready Students and the Metro Atlanta Chamber estimates that childcare challenges cost Georgia at least $2.52 billion in economic activity each year. Among Georgia parents of children ages 5 and younger, nearly 1 in 3 said they or another caregiver in their home had to leave, turn down or significantly change a job in the prior 12 months because of childcare challenges.

The rules governing Georgia and federal childcare benefits contain additional requirements and limitations. Employers should evaluate their specific structure, tax liability and employee benefit arrangements before implementing a program.

About the Author

Rebekah Judge, CPA, is a partner in Moore Colson’s Tax Practice Area with nearly 20 years of experience in public accounting. She focuses on strategic tax planning and compliance services for closely held businesses, with extensive experience in the healthcare and professional services industries.