IRS Form 8882

From AIM Financial | Serving Grand Rapids, Kentwood, Wyoming, Middleville, and Michigan

Providing childcare benefits can help employers attract employees, improve workplace stability, and support working families. However, establishing a childcare facility or arranging childcare services can be expensive, particularly for small businesses.

The federal government offers an employer-provided childcare tax credit that may help qualifying businesses offset certain eligible expenses. IRS Form 8882, Credit for Employer-Provided Child Care Facilities and Services, is used to calculate this credit.

For business owners in Grand Rapids, Kentwood, Wyoming, Middleville, and throughout West Michigan, understanding Form 8882 may reveal a tax-saving opportunity worth discussing during business tax preparation.

What Is IRS Form 8882?

IRS Form 8882 allows eligible employers to claim a federal tax credit for certain expenses incurred to provide childcare assistance to employees.

Eligible expenses may include costs associated with establishing or expanding a qualifying childcare facility, operating an eligible facility, contracting with a childcare provider, or arranging qualifying childcare resource and referral services.

The credit is generally part of the general business credit and is subject to applicable tax rules and limitations.

Importantly, the rules changed for expenses paid or incurred after December 31, 2025. Businesses preparing 2025 tax returns generally need to apply the earlier rules, while qualifying expenses incurred in 2026 may be subject to enhanced credit rates and limits enacted in 2025. Employers should use the instructions applicable to the year in which the expenses were incurred.

What Changed for the Childcare Tax Credit in 2026?

For expenses paid or incurred before January 1, 2026, the credit generally equals:

• 25% of qualified childcare facility expenditures.
• 10% of qualified childcare resource and referral expenditures.
• A maximum credit of $150,000 per tax year.

For qualifying expenses paid or incurred in 2026 and later, the law increased the credit for eligible employers. Under the updated rules reflected in the IRS’s 2026 draft instructions, the credit generally equals:

• 40% of qualified childcare expenditures for employers that do not meet the eligible small-business definition.
• 50% of qualified childcare expenditures for an eligible small business.
• An additional 10% of qualified childcare resource and referral expenditures.
• A maximum annual credit of $500,000, or $600,000 for an eligible small business.

The eligible small-business definition is based on a gross-receipts test over a five-year period under the applicable tax rules. Businesses should not assume that having only a few employees automatically qualifies them for the enhanced rate.

Because the IRS’s December 2026 instructions were available as a draft when this article was prepared, employers should check the latest official Form 8882 instructions before filing.

Which Childcare Expenses May Qualify?

Not every expense connected with childcare qualifies for the credit. The expense must meet the relevant requirements.

1. Establishing or expanding a childcare facility

Eligible expenses may include certain costs to acquire, construct, rehabilitate, or expand property used as part of a qualifying childcare facility.

The property generally must be depreciable or amortizable and cannot be part of the principal residence of the employer or an employee.

2. Operating a qualifying childcare facility

Eligible operating expenses may include certain costs associated with running the facility. Depending on the circumstances, these can include employee training, scholarship programs, and increased compensation for childcare workers with higher levels of training.

3. Contracting with a childcare provider

A business may incur qualifying costs under a contract with a childcare facility to provide childcare services to employees. The arrangement must satisfy the applicable IRS requirements.

4. Childcare resource and referral services

Employers may also qualify for the separate 10% credit on qualifying amounts paid under a contract for childcare resource and referral services for employees.

For example, a business might pay a qualified provider to help employees locate suitable childcare arrangements. The agreement and services must meet the IRS requirements.

What Makes a Childcare Facility Qualified?

A childcare facility must satisfy applicable legal and operational conditions.

Generally, the facility must comply with state and local laws and regulations, including licensing requirements. Its principal use must be to provide childcare, subject to the applicable exception for a facility that is also the operator’s principal residence.

Additional requirements include:

• Enrollment must be open to the employer’s employees during the tax year.
• If operating the childcare facility is the taxpayer’s principal trade or business, at least 30% of enrollees generally must be dependents of the taxpayer’s employees.
• The facility’s use and eligibility rules must not discriminate in favor of highly compensated employees.

Businesses should retain records showing that the facility and related arrangements satisfy these conditions.

How Do You Complete IRS Form 8882?

A business preparing Form 8882 should generally follow these steps.

Step 1: Identify the tax year. Determine whether the expenses were paid or incurred in 2025 or 2026, since the credit rules differ.

Step 2: Gather expense records. Collect invoices, contracts, facility construction or improvement records, operating expense documentation, and resource and referral service agreements.

Step 3: Confirm eligibility. Review the facility’s licensing, employee access, nondiscrimination requirements, and other applicable conditions.

Step 4: Separate the expense categories. Identify qualifying facility expenditures and qualifying resource and referral expenditures.

Step 5: Apply the correct credit rate and limit. Use the rules and Form 8882 instructions applicable to the tax year, including any eligible small-business requirements.

Step 6: Report the credit correctly. The credit generally flows through the general business credit rules. Partnerships and S corporations typically report the appropriate information to their owners, while other taxpayers follow the applicable Form 3800 and return instructions.

Keep the supporting records with your business tax documents.

Common Form 8882 Mistakes to Avoid

Employers should avoid these common errors:

• Using the 2025 credit rates for qualifying expenses incurred in 2026.
• Assuming every childcare-related expense qualifies.
• Claiming expenses for a facility that does not meet applicable licensing requirements.
• Overlooking employee access and nondiscrimination rules.
• Assuming every small employer qualifies for the enhanced small-business rate.
• Claiming the same expense for multiple tax benefits when prohibited.
• Ignoring potential credit recapture rules if a qualifying facility stops operating or ownership changes.

The IRS also has rules that can require a business to repay some or all of a previously claimed credit under certain circumstances, including when a facility ceases to qualify within the applicable recapture period.

How AIM Financial Can Help Your Business

If your business pays for childcare services, operates a childcare facility, or is considering offering childcare assistance to employees, Form 8882 may deserve a closer look.

AIM Financial helps business owners in Grand Rapids, Kentwood, Wyoming, Middleville, and throughout West Michigan with business tax preparation and tax-form questions. We can help review your tax documents, identify reporting issues, and determine which questions should be addressed when preparing your business tax return.

Do not overlook a potential business tax credit because the rules seem complicated. Contact AIM Financial to discuss your business tax preparation needs and whether the employer-provided childcare credit may apply.

This article is for general educational purposes and is not individualized tax or legal advice. Eligibility and credit amounts depend on the expenses, business circumstances, and rules applicable to the tax year. Consult the current IRS instructions before filing.