Stricken language would be deleted from and underlined language would be added to present law.
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State of Arkansas 1
95th General Assembly A Bill 2
Regular Session, 2025 HOUSE BILL 1435 3
4
By: Representative Achor 5
By: Senators J. English, Irvin 6
7
For An Act To Be Entitled 8
AN ACT TO AMEND THE LAW CONCERNING INCOME TAX CREDITS 9
RELATED TO CHILD CARE; TO AMEND THE INCOME TAX CREDIT 10
FOR EMPLOYER-PROVIDED CHILD CARE; TO PROVIDE AN 11
INCOME TAX CREDIT FOR LICENSED CHILDCARE PROVIDERS; 12
TO DECLARE AN EMERGENCY; AND FOR OTHER PURPOSES. 13
14
15
Subtitle 16
TO AMEND THE LAW CONCERNING INCOME TAX 17
CREDITS FOR CHILD CARE; TO AMEND THE 18
INCOME TAX CREDIT FOR EMPLOYER -PROVIDED 19
CHILD CARE; TO PROVIDE AN INCOME TAX 20
CREDIT FOR LICENSED CHILDCARE PROVIDERS; 21
AND TO DECLARE AN EMERGENCY. 22
23
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS: 24
25
SECTION 1. Arkansas Code § 6 -45-109(b), concerning certification of 26
childcare facilities by the Division of Child Care and Early Childhood 27
Education, is amended to read as follows: 28
(b) Upon certification of the childcare facilities, the division shall 29
provide a listing of all certified facilities and their certification numbers 30
to the Secretary of the Department of Finance and Administration for the 31
purpose of the income tax credit or refund provided for in § § 26-51-502 and 32
26-51-507. 33
34
SECTION 2. Arkansas Code § 20 -78-205(d)(1)(I), concerning the 35
information the Division of Child Care and Early Childhood Education shall 36 HB1435
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make available on the website of the Department of Human Services, is amended 1
to read as follows: 2
(I) Availability of a federal or state tax credit or other 3
federal or state tax benefit, including without limitation the employer -4
provided child care credit that is available to taxpayers under § § 26-51-507 5
and 26-51-508. 6
7
SECTION 3. Arkansas Code § 26 -51-507 is repealed. 8
26-51-507. Employer-provided child care — As qualified under former § 9
26-52-401 — Definition. 10
(a) A business which qualifies for the exemption from the gross 11
receipts tax under former § 26 -52-401(29) shall be allowed an income tax 12
credit of three and nine -tenths percent (3.9%) of the annual salary of 13
employees employed exclusively in providing childcare services. 14
(b) If two (2) or more businesses participate in a childcare program 15
for their employees as provided by former § 26 -52-401(29), then each business 16
will be allowed an income tax credit of three and nine -tenths percent (3.9%) 17
of the annual salary of only those employees who are on the respective 18
business' payroll and are employed exclusively for providing childcare 19
services. 20
(c)(1) To qualify for the income tax credit, the revenue to the 21
business or businesses from the childcare facility cannot exceed the direct 22
operating costs of the facility. If, on an annual basis, the childcare 23
facility receives revenue which exceeds the direct operating costs of the 24
facility, the business or businesses will not be entitled to the income tax 25
credit. 26
(2) As used in this section, “direct operating costs” means: 27
(A) The cost of food and beverages provided to the 28
children; 29
(B) The cost of labor for personnel whose services are 30
performed exclusively on the premises of the childcare facility for the care 31
of the children and all related employment taxes paid by the employer; and 32
(C) All materials and supplies necessary to operate the 33
childcare facility. 34
(d) The income tax credit created by subsection (a) of this section 35
shall first be available in the taxable year following the year the business 36 HB1435
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makes payment of wages to childcare workers. To the extent that the credit is 1
not fully utilized in this first year, it may be carried forward for an 2
additional two (2) years. Any credit remaining thereafter shall expire. 3
(e) The income tax provisions of this section shall be in full force 4
and effect for all income tax years beginning on and after January 1, 1993. 5
6
SECTION 4. Arkansas Code § 26 -51-508 is amended to read as follows: 7
26-51-508. Employer-provided child care — As qualified under § 26 -52-8
516 or § 26-53-132 — Definition Definitions. 9
(a) A business which qualifies for the refund of the gross receipts 10
tax or compensating use tax under § 26 -52-516 or § 26-53-132 shall be allowed 11
an income tax credit of three and nine -tenths percent (3.9%) of the annual 12
salary of its employees employed exclusively in providing childcare service, 13
or a five-thousand-dollar income tax credit for the first tax year the 14
business provides its employees with a childcare facility. 15
(b) If two (2) or more businesses participate in a childcare program 16
for their employees as provided by § 26 -52-516 or § 26-53-132, then each 17
business will be allowed an income tax credit of three and nine -tenths 18
percent (3.9%) of the annual salary of only those employees who are on the 19
respective business' payroll and are employed exclusively for providing 20
childcare services. The first year's five -thousand-dollar credit will be 21
prorated among the businesses based upon the percentage of the cost paid by 22
each business for the initial construction and equipping of the childcare 23
facility. 24
(c)(1)(A) To qualify for the income tax credit, the revenue to the 25
business or businesses from the childcare facility cannot exceed the direct 26
operating costs of the facility. 27
(B) If, on an annual basis, the business receives revenues 28
from the operation of the childcare facility which exceed the direct 29
operating costs of the facility, the businesses will not be entitled to the 30
income tax credit. 31
(2) As used in this subsection, “direct operating costs” means: 32
(A) The cost of food and beverages provided to the 33
children; 34
(B) The cost of labor for personnel whose services are 35
performed exclusively on the premises of the childcare facility for the care 36 HB1435
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of the children and all related employment taxes paid by the employer; and 1
(C) All materials and supplies necessary to operate the 2
childcare facility. 3
(d) The income tax credit created by subsection (a) of this section 4
shall first be available in the taxable year following the year the business 5
makes payment of wages to childcare workers. To the extent that the credit is 6
not fully utilized in this first year, it may be carried forward for an 7
additional two (2) years. Any credit remaining thereafter shall expire. 8
(a) As used in this section: 9
(1) "Eligible expense" means: 10
(A) The cost of construction, renovation, expansion, or 11
repair of a childcare facility by a taxpayer to provide childcare services 12
for the employees of the taxpayer; 13
(B) A payment to a childcare facility licensed by the 14
Department of Human Services for the provision of childcare services for one 15
(1) or more employees of the taxpayer; 16
(C) A payment to a childcare facility licensed by the 17
Department of Human Services to reserve childcare services for one (1) or 18
more employees of the taxpayer; and 19
(D)(i) Fifty percent (50%) of the amount contributed by an 20
employer for dependent care assistance provided to an employee of the 21
employer under a dependent care assistance program as described in 26 U.S.C. 22
§ 129, as it existed on January 1, 2025. 23
(ii) The total amount of eligible expenses allowed 24
under subdivision (a)(1)(D)(i) of this section shall not exceed two thousand 25
five hundred dollars ($2,500) per employee of the employer that benefits from 26
a dependent care assistance program during the tax year; 27
(2) "Rural area" means an area in the state that is not within 28
the boundaries of an incorporated town or a city that has a population of 29
more than twenty-five thousand (25,000) according to the most recent federal 30
decennial census; and 31
(3) "Small business" means a business that has: 32
(A) Fewer than two hundred fifty (250) employees; and 33
(B) Less than five million dollars ($5,000,000) in yearly 34
revenue. 35
(b)(1)(A) There is allowed an income tax credit against the income 36 HB1435
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tax imposed by this chapter in the amount equal to the eligible expenses 1
incurred by an employer during the tax year. 2
(B) The income tax credit allowed under this section shall 3
not exceed five hundred thousand dollars ($500,000) for an employer in a tax 4
year. 5
(2)(A) The total aggregate amount of income tax credits allowed 6
under this section for all employers shall not exceed fifteen million dollars 7
($15,000,000) in a calendar year. 8
(B)(i) Three million seven hundred fifty thousand dollars 9
($3,750,000) of the total aggregate amount of income tax credits that may be 10
allowed under subdivision (b)(2)(A) of this section shall be reserved for the 11
award of income tax credits to small businesses and employers that have their 12
primary place of business located in a rural area. 13
(ii) The remaining amount of income tax credits that 14
may be allowed under subdivision (b)(2)(A) of this section shall be awarded 15
to employers without regard to their location or size. 16
(c) The amount of the income tax credit under this section that may be 17
claimed by an employer in a tax year shall not exceed the amount of income 18
tax due by the employer. 19
(d)(1) To claim an income tax credit under this section, an employer 20
shall submit an application for the tax year to the Department of Finance and 21
Administration using the form required under subdivision (d)(2)(A) of this 22
section. 23
(2) The Department of Finance and Administration shall: 24
(A) Prepare and provide a standardized form for an 25
employer to use to apply for the income tax credit allowed under this 26
section; 27
(B) Require an employer submitting an application under 28
this section to: 29
(i) Certify that the expenses for which the employer 30
is claiming a credit under this section are eligible expenses; and 31
(ii) Provide documentation to substantiate the 32
amount of eligible expenses for which the employer is claiming a credit under 33
this section; and 34
(C)(i) Subject to the limitations stated in this section, 35
award an income tax credit under this section to an employer that submits a 36 HB1435
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completed application on the required form and provides the certification and 1
documentation required under this section. 2
(ii) If an applicant for an income tax credit under 3
this section fails to submit a completed application on the required form or 4
fails to provide the certification or documentation, or both, required under 5
this section, the Department of Finance and Administration shall 6
automatically deny the application. 7
(e) An employer that is exempt from taxation under 26 U.S.C. § 8
501(c)(3), as it existed on January 1, 2025, may transfer or sell an income 9
tax credit allowed under this section. 10
(f) The Department of Finance and Administration may adopt rules to 11
administer this section. 12
13
SECTION 5. Arkansas Code Title 26, Chapter 51, Subchapter 5, is 14
amended to add an additional section to read as follows: 15
26-51-518. Licensed childcare provider. 16
(a) As used in this section: 17
(1) "Eligible children" means individuals who are twelve (12) 18
years of age or younger; 19
(2) "Licensed childcare provider" means a person or facility 20
that owns or operates a childcare facility licensed by the Department of 21
Human Services; and 22
(3) "Rural area" means an area in the state that is not within 23
the boundaries of an incorporated town or a city that has a population of 24
more than twenty-five thousand (25,000) according to the most recent federal 25
decennial census. 26
(b)(1) There is allowed an income tax credit against the income tax 27
imposed by this chapter in the amount determined under subdivision (b)(2) of 28
this section for a licensed childcare provider. 29
(2)(A) Subject to the limitations stated this section, the 30
amount of the income tax credit allowed under this section shall be 31
calculated by multiplying the average monthly number of eligible children 32
enrolled with the licensed childcare provider claiming the income tax credit 33
during the tax year by one thousand five hundred dollars ($1,500). 34
(B) The income tax credit allowed under this section shall 35
not exceed twenty-five thousand dollars ($25,000) for a licensed childcare 36 HB1435
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provider in a tax year. 1
(3)(A) The total aggregate amount of income tax credits allowed 2
under this section for all licensed childcare providers shall not exceed five 3
million dollars ($5,000,000) in a calendar year. 4
(B)(i) One million one hundred twenty -five thousand 5
dollars ($1,125,000) of the total aggregate amount of income tax credits that 6
may be allowed under subdivision (b)(3)(A) of this section shall be reserved 7
for the award of income tax credits to licensed childcare providers located 8
in a rural area. 9
(ii) The remaining amount of income tax credits that 10
may be allowed under subdivision (b)(3)(A) of this section shall be awarded 11
to licensed childcare providers without regard to the location of the 12
licensed childcare provider. 13
(c) The amount of the income tax credit under this section that may be 14
claimed by a licensed childcare provider in a tax year shall not exceed the 15
amount of income tax due by the licensed childcare provider. 16
(d)(1) To claim an income tax credit under this section, a licensed 17
childcare provider shall submit an application for the tax year to the 18
Department of Finance and Administration using the form required under 19
subdivision (d)(2)(A) of this section. 20
(2) The Department of Finance and Administration shall: 21
(A)(i) Prepare and provide a standardized form for a 22
licensed childcare provider to use to apply for the income tax credit allowed 23
under this section. 24
(ii) The form required under subdivision 25
(d)(2)(A)(i) of this section shall require at least the following 26
information: 27
(a) Documentation evidencing the applicant's 28
ownership of a childcare facility licensed by the Department of Human 29
Services; 30
(b) The amount of income tax credit for which 31
the licensed childcare provider is submitting an application under this 32
section; and 33
(c) The average number of eligible children 34
enrolled with the licensed childcare provider submitting the application 35
during the tax year; and 36 HB1435
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(B)(i) Subject to the limitations stated in this section, 1
award an income tax credit under this section to a licensed childcare 2
provider that submits a completed application on the required forms and 3
provides the information required under this section. 4
(ii) If an applicant for an income tax credit under 5
this section fails to submit a completed application on the required form or 6
fails to provide the information required under this section, the Department 7
of Finance and Administration shall automatically deny the application. 8
(e) A licensed childcare provider that is exempt from taxation under 9
26 U.S.C. § 501(c)(3), as it existed on January 1, 2025, may transfer or sell 10
an income tax credit allowed under this section. 11
(f) The Department of Finance and Administration may adopt rules to 12
administer this section. 13
14
SECTION 6. EFFECTIVE DATE. Sections 1 -5 of this act are effective for 15
tax years beginning on or after January 1, 2026. 16
17
SECTION 7. EMERGENCY CLAUSE. It is found and determined by the 18
General Assembly of the State of Arkansas that this act would create 19
significant changes to the state's tax laws; that taxpayers and employers 20
plan to meet their obligations on a calendar -year basis; and that this act is 21
immediately necessary to ensure the financial stability of the state, to 22
allow taxpayers and employers time to plan for and implement the changes in 23
law created by this act, and to ensure that the Department of Finance and 24
Administration has sufficient time to update its forms and software and train 25
its personnel in accordance with this act. Therefore, an emergency is 26
declared to exist, and this act being immediately necessary for the 27
preservation of the public peace, health, and safety shall become effective 28
on: 29
(1) The date of its approval by the Governor; 30
(2) If the bill is neither approved nor vetoed by the Governor, 31
the expiration of the period of time during which the Governor may veto the 32
bill; or 33
(3) If the bill is vetoed by the Governor and the veto is 34
overridden, the date the last house overrides the veto. 35
36