FEDERAL POLICY UPDATE · WHAT THE 2025–26 CHANGES MEAN FOR YOUR BUSINESS
Is this a crisis or is it an opportunity?
Cutting through the national headlines: the core child care programs weren't cut; they were funded and nudged up, and a new tax law put the biggest child care benefits for families and employers in nearly 40 years on the table. Here's what actually happened since January 2025, and where the money is for your program.
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40–50% EMPLOYER CREDIT: the headline for owners
The federal Employer-Provided Child Care Credit (Section 45F) jumped from 25% to 40% of costs, 50% for small businesses, with the cap raised from $150K to $500K ($600K small business). And for the first time, several employers can jointly fund or share one facility and still qualify. Translation: real dollars for local employers to partner with programs like yours.
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■ Employer partnerships just got far more valuable
When a nearby employer helps pay for their team's child care, they now recover 40–50 cents on the dollar from the IRS, up to $500K–$600K a year. The new "shared facility" rule means a handful of small employers can pool together and contract with your program. No one has to build their own center. This is new revenue you couldn't easily access a year ago.
■ Families now have more support for child care costs
Dependent Care FSA: pre-tax limit raised from $5,000 to $7,500 (first increase since 1986). Parents can direct more untaxed income straight to tuition.
Child & Dependent Care Credit: top credit rate rose from 35% to 50% of care costs. Families get more back for choosing licensed care.
Child Tax Credit: up to $2,200 per child, now permanent and inflation-adjusted.
All permanent: these aren't temporary. They're locked in going forward, so you can plan and market around them with confidence.
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What this means for a Colorado family: the "true cost" of infant care
~$19,000 avg. CO infant tuition (center-based, per year)
– ~$2,550 Dependent Care FSA tax savings ($7,500 pre-tax)
= ~$16,450 true out-of-pocket care cost
And there's more relief on top: the $2,200-per-child Child Tax Credit brings total federal help to roughly $4,750 for a one-infant family, about a quarter of tuition. Lower-income families without a workplace FSA do even better on the credit side (up to 50% of care costs back). Colorado's Universal Preschool adds ~$6,300/year of state support at age 4. FSA savings vary by tax bracket; families should confirm specifics with a tax professional.
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■ Your base funding held, and grew
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$8.83B
▲ $85M
Child Care Block Grant (CCDBG)
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$12.36B
▲ $85M
Head Start / Early Head Start
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$315M
held steady
Preschool Dev. Grants (B–5)
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Despite a long, noisy budget fight, Congress funded these programs for the full year (signed Feb. 3, 2026). The proposed elimination of Head Start that drove much of the panic did not happen. One honest note for straight talk with parents and lawmakers: these increases are modest and don't fully keep pace with inflation. Much of what people felt as a "cliff" was temporary pandemic (ARPA) money ending on schedule, not a cut to the programs you rely on.
ECEA's bottom line
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The direction of new federal help is toward families and employers (credits, pre-tax dollars, and partnership incentives) rather than a government-run system. That plays to your strengths as a private program serving parents who choose you. We're in the meetings and reading the fine print so you don't have to, and we'll help you turn these changes into enrollments and partnership revenue. Add to this the new Savings accounts that were created that automatically deposit $1,000 into each newborns account (once set up) to help them in the future. www.trumpaccounts.gov and you've got innovation at it's best.
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Don't leave this money on the table. Together we are stronger.
Join ECEA → coloradoecea.org/join-now
About ECEA: The Early Childhood Education Association of Colorado has advocated for Colorado's licensed private child care and early education programs since 1985. Through legislative representation, administrative advocacy, education, and money-saving partnerships, ECEA helps program owners thrive. We are the workforce behind the workforce.
Figures: enacted FY2026 Labor-HHS appropriations (signed 2/3/2026) via First Five Years Fund & CLASP; tax provisions via the One Big Beautiful Bill Act (signed 7/4/2025) per Bipartisan Policy Center, Mercer, Western CPE, and IRS guidance. Shared for member information; not tax advice. · © 2026 ECEA of Colorado
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