By Beginning in 2026, the One Big Beautiful Bill Act increases the employer childcare credit for small businesses to 50 percent of qualified expenses, up to $600,000 per year. Even one-owner businesses can benefit—and the savings are substantial.
If you operate as a sole proprietor, you cannot claim the credit for your own childcare because you are not an employee. But if you hire your spouse as a legitimate W-2 employee, your business qualifies.
For example, on $20,000 in childcare expenses, the 50 percent credit results in a $10,000 dollar-for-dollar tax reduction. The remaining $10,000 is deductible, producing additional tax savings. After your spouse pays tax on the wages, the household comes out thousands of dollars ahead.
Solo S corporation owner-employees also win. Although a more-than-5-percent owner must include the childcare benefit in W-2 wages, the combination of the 50 percent credit plus the deduction outweighs taxes paid on wage inclusion, resulting in thousands in savings.
The key driver is the 50 percent credit. When paired with a deduction for the remaining expense, the math is strongly favorable, despite the benefit being taxable.
If you want to discuss the new childcare credit, please call me directly at 408-778-9651