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The 2024-25 state budget included a provision allowing employers to claim a tax credit if they contribute toward the cost of daycare for their employees.
Despite skyrocketing childcare costs and concerns about worker shortages, the response from the business community was less than thunderous.
Just one company claimed the tax credit in 2025.
While state officials had estimated that the tax credit would cost the state $8 million a year in lost revenue in its first year, the price tag was just $619.
Now lawmakers are going back to the drawing board to try to make the tax credit more attractive.
Under the Employer Child Care Contribution Tax Credit, employers can claim a tax credit for 30% of eligible contributions toward the cost of childcare. However, the maximum contribution amount is capped at $500 per employee, generating a tax credit of no more than $150 per worker who benefits.
House Bill 2748 would increase the tax credit amount that employers can receive from 30% to 100% of their employees' eligible childcare costs. It also would raise the employer's annual contribution limit from $500 to $10,000 per employee and increase the maximum tax credit that can be awarded annually to employers from $150 per employee to $10,000.
Total tax credits would be capped at $10 million each year.
"Childcare costs are placing an enormous strain on Pennsylvania families, and we need to do more to make quality care affordable and accessible," said Rep. Liz Hanbidge, D-Montgomery. Hanbidge and state Rep. Morgan Cephas, D-Philadelphia, are the prime sponsors of the original tax credit proposal and HB 2478.
"By expanding the Employer Child Care Contribution Tax Credit, we can give businesses a stronger incentive to help their employees cover these costs while putting more money back in the pockets of working families. This legislation builds on our previous efforts and is a step toward making childcare more affordable across Pennsylvania," Hanbidge said.
The lawmakers note that in 2024 when the tax credit law was passed, the average annual day care bill was $13,128 -- up from $10,174 in 2020.
The price tag for a year of infant daycare in Pennsylvania now approaches $15,000, according to industry estimates.
House Bill 2748 was referred to the House Finance Committee for consideration.
Similar tax credit programs
The childcare contribution tax credit for employers is part of a series of tax breaks enacted by lawmakers in recent years intended to help working families deal with rising costs.
The Child and Dependent Care Enhancement Tax Credit allows income-eligible taxpayers to claim a credit of up to $1,050 for one child or $2,100 for two or more children. The amount of the tax credit is calculated on a sliding scale, based on the family's household income. The minimum credit is $600 for one child or $1,200 for two or more children if the family's annual child care bill tops $3,000 per child, according to the Department of Human Services.
About 222,000 Pennsylvanians got a combined $139 million in tax credits through the program, according to the Department of Revenue.
Legislation introduced in the state Senate in June would increase the amount provided to families through this tax credit by mirroring changes to the federal Child and Dependent Care Tax Credit.
The changes in Senate Bill 1382 would translate into a $450 boost in the tax credit for families with one child in daycare and $900 for families with two or more children in daycare. The legislation was referred to the Senate Finance Committee, which has not voted on it yet.
In addition, the Department of Revenue says 876,000 people benefited from the Working Pennsylvanians Tax Credit created with the 2025-26 budget signed into law by Gov. Josh Shapiro in November 2025. Modeled after the federal Earned Income Tax Credit (EITC), the new state-level credit equals 10% of the federal credit. During its first year, it put up to $805 back into the pockets of eligible Pennsylvanians.