Child care probably isn’t the first thing that comes to mind when you think about business tax credits. But for Utah employers looking for ways to attract and retain great people, it may be worth a much closer look.

Utah H.B. 190 significantly expands the state’s Child Care Business Tax Credit beginning in 2026. And when the Utah credit is paired with changes to the federal Employer-Provided Child Care Credit under IRC Section 45F, the economics can become surprisingly compelling.

For some qualifying small businesses, Tanner’s analysis shows that the combined tax benefit of a properly structured child care arrangement could offset as much as 93% of the employer’s cost in the example modeled.

Yes, 93%.

The key words, however, are properly structured.

What Changed Under Utah H.B. 190?

One of the biggest changes under H.B. 190 is that Utah expanded the credit to include expenses for employer-contracted child care.

Previously, the credit was more closely tied to employers making qualified construction expenditures for child care facilities. H.B. 190 removes that construction-credit prerequisite and creates a much more practical opportunity for businesses that want to help employees with child care without getting into the business of operating a child care center themselves.

Under the new rules, qualifying arrangements can include an employer facility, reserved child care slots or contracts with qualified child care providers.

That distinction matters. An employer could potentially contract directly with a local child care provider to reserve capacity for employees and receive tax benefits for doing it.

For 2026, the Utah credit is 30% for eligible small businesses and 10% for larger businesses. But the Utah credit is tied directly to federal qualification. To be a qualifying claimant for Utah purposes, the business must qualify for and claim the federal employer-provided child care tax credit under IRC Section 45F.

The Federal Credit Got Better Too

This is where the opportunity becomes particularly interesting.

Beginning in 2026, the federal credit rate increases to 50% for eligible small businesses and 40% for other employers, with the credit cap increasing to as much as $600,000 for eligible small businesses and $500,000 for other employers. The federal credit also affects the amount of the related business tax deduction, so all of these pieces need to be considered together.

For an eligible Utah small business, that potentially means a 50% federal credit plus a 30% Utah credit before considering the remaining tax deduction.

That is where the math starts getting interesting.

“Small Business” May Be Bigger Than You Think

Don’t automatically assume your company is too large to qualify for the enhanced small-business incentives.

For purposes of these provisions, the definition relies on the IRC Section 448(c) gross receipts test (approximately $32 million in average gross receipts), measured over a five-year period.

That means plenty of established, privately held businesses could potentially fall within the definition.

Determining eligibility isn’t necessarily as simple as looking at last year’s revenue, however. Businesses need to calculate the applicable five-year average and consider aggregation rules where related entities are involved.

What Could the Tax Benefit Actually Look Like?

Consider a small business that spends $12,000 on qualifying child care expenses.

In this example, the business receives a $6,000 federal tax credit and a $3,600 Utah tax credit. After accounting for the remaining deductible expense and the resulting federal and state tax savings, the total modeled tax benefit is $11,133.

That leaves a modeled net after-tax cost of just $867, or a total tax benefit equal to approximately 93% of the original expenditure.

The benefit can still be significant for larger businesses. Using the same $12,000 expenditure, Tanner’s example applies the 40% federal credit and 10% Utah credit and calculates a total tax benefit of $7,840, or approximately 65% of the expenditure, leaving a net after-tax cost of $4,160.

These are illustrations rather than promises of a particular tax result. But they demonstrate why the credit deserves attention.

How You Structure the Benefit Matters

This may be the most important part of the new opportunity.

Simply giving an employee money for child care is not the same thing as creating a qualifying child care arrangement.

Qualifying expenses can include employer facilities, reserved slots and contracted providers. General child care stipends, cash reimbursements and amounts treated as compensation or additional wages do not qualify for these credits.

That can create a very different tax result.

If you compare a qualifying $12,000 arrangement with an employee direct reimbursement arrangement. The direct reimbursement does not generate either the federal or Utah child care credits. Instead, the employer receives only the applicable tax benefit from the business deduction, with employee-level tax treatment also potentially coming into play.

In other words, two employers could spend the same $12,000 helping employees with child care and end up with dramatically different tax results simply because of how the benefit was structured.

That’s why this is an opportunity to evaluate before writing the check.

Documentation Matters Too

Like most valuable tax credits, qualifying is only half the equation. You also need to be able to support the claim.

Employers should maintain an executed agreement with the child care provider, including amendments, evidence of reserved slots or capacity and a description of the services being provided to employees. Businesses should also retain invoices, canceled checks or ACH confirmations, general ledger detail and a year-end expenditure summary.

Documentation supporting the child care facility itself is also important, including its state childcare license and evidence that it complies with applicable state and local requirements.

Businesses claiming the enhanced small-business treatment should be prepared to support that determination as well, including gross receipts schedules, five-year revenue calculations and any necessary entity aggregation analysis.

One additional distinction is worth noting: qualified construction expenditure credits can carry forward for five years, while excess child care expenditure credits generally do not carry forward or carry back beyond the taxpayer’s income tax liability for the year.

This Is More Than a Tax Conversation

What makes H.B. 190 especially interesting is that it brings together two issues business owners are already thinking about: tax strategy and people strategy.

If your company is already subsidizing child care, you should be asking whether those expenditures could qualify.

If you’re providing employees with child care stipends or reimbursements, it may be worth considering whether a different structure could produce a better result.

And if you’ve considered helping employees with child care but decided it was simply too expensive, the combined federal and Utah incentives may change that calculation.

Before You Pay for Child Care, Look at the Structure

The headline here isn’t simply that Utah created another tax credit. It’s that the federal and Utah incentives can be powerful when used together, and H.B. 190 makes the opportunity accessible to more employers by allowing qualifying contracted child care arrangements.

For employers, the biggest mistake may be spending money on a child care benefit first and asking about the tax treatment later.

If you’re considering adding child care support in 2026, or you’re already paying for some form of child care benefit, Tanner’s Credits & Incentives team can help you determine whether you qualify, evaluate the economics and structure the arrangement with the tax requirements in mind.

Because when you’re already investing in your people, it’s worth making sure you’re not leaving a valuable tax benefit on the table. Start a conversation with our team today.