Utah Expands Employer Childcare Tax Credit

On March 26, 2026, Governor Spencer Cox signed Utah House Bill (HB) 190, which expands the state tax credit available to employers that provide on-site childcare, or pay for off-site childcare, for their employees. This is a voluntary credit; previously, only employers with certain on-site childcare facilities qualified.

The law increases the credit rate to 30% of qualified childcare expenditures for eligible small businesses, removes a prior eligibility requirement tied to construction expenditure credits, and expands the types of childcare arrangements and expenses that qualify.

This update applies to Utah employers that choose to claim the credit. The law took effect on May 6, 2026, and applies retroactively to January 1, 2026.

What Employers Should Do

Legal Requirements

• Do not obtain payment from an employee (or deduct from their wages or salary) for childcare services at any facility for which the credit is claimed. Doing so disqualifies the employer from the credit.
• Ensure claimed expenditures fall within the statutory definition of qualified childcare expenditures, which includes operating costs of a qualified childcare facility (whether operated by the employer or a third-party provider), employee training, and increased compensation for childcare workers with advanced training.

Practical Considerations

• Consider whether the expanded credit makes on-site or off-site employer-supported childcare a more attractive benefit, especially for eligible small businesses that now qualify for a 30% credit rate.
• Evaluate different childcare models permitted under the credit, including employer-operated facilities, third-party providers, and contracted childcare arrangements, to determine which best fits the workforce and budget.
• Coordinate with tax advisors to align the state credit with the federal Employer-Provided Child Care Credit under Internal Revenue Code Section 45F, since the two may be claimed together for eligible small businesses.
• Review childcare-related workforce investments (such as training programs and higher compensation for trained childcare workers) that may qualify as credit-eligible expenditures.
• Update payroll and benefits arrangements to confirm that employees are not being charged (directly or through wage deductions) for childcare services at any facility for which the credit is claimed.

Overview

What the Credit Now Covers

• The credit applies to both on-site and off-site childcare arrangements. Employers no longer must operate an on-site facility to qualify.
• Qualified childcare expenditures include operating costs of a qualified childcare facility, whether operated by the employer or provided through a third-party provider.
• Qualified expenditures include employee training and increased compensation for childcare workers with advanced training.

Small Business Rate Increase: Eligible small businesses (as defined under Internal Revenue Code Section 45F) now qualify for a credit of 30% of qualified childcare expenditures, up from 10% under prior law.

Removed Eligibility Restriction: Employers no longer must first claim the tax credit for childcare facility construction expenditures before claiming the tax credit for childcare operating expenditures.

Disqualification Rule: Employers do not qualify for the credit if they obtain payment from an employee, or deduct from their wages or salary, for childcare services at any facility for which the credit is claimed.

Statutory Framework:

• HB 190 amends Utah Code section 59-7-627 (corporate income tax) and section 59-10-1048 (individual income tax), making the credit available to different business structures.
• The law does not appropriate additional state funding. It expands existing tax-credit mechanisms.

Federal Interaction: HB 190 is designed to work alongside the federal Employer-Provided Child Care Credit under Internal Revenue Code Section 45F. When combined, small employers may be able to offset a substantial portion of qualifying childcare costs.

Why This Matters

This law makes employer-supported childcare significantly more accessible in Utah, particularly for small businesses that previously received only a 10% credit and could not qualify without an on-site facility. By expanding the credit to off-site arrangements, third-party providers, and workforce investments (such as training and compensation for trained childcare workers), the law gives employers meaningful flexibility to design childcare benefits that fit their workforce. Combined with the federal Section 45F credit, eligible small employers may be able to offset a substantial portion of their childcare-related costs.

Key Risks for Employers

• Employers that do not review whether they qualify for the expanded credit may leave a significant tax benefit unclaimed, particularly small businesses now eligible for the 30% rate.
• Standard Utah tax rules apply if the credit is claimed incorrectly, including potential audit adjustments, back taxes, interest, and applicable penalties under the Utah tax code. Federal credit claims are also subject to standard IRS rules.
• Employers that obtain payment from an employee (or deduct from wages or salary) for childcare services at a facility for which the credit is claimed will not qualify. If the credit was already claimed, this may lead to disallowance and standard tax adjustments.

Source References

• Utah HB 190 – Child Care Business Tax Credit

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