Blog
Two things are true about child care: It’s important and it’s expensive.
Child care is important. For many children, it is their first experience in a learning program. Children may go to a private child care center, a preschool or prekindergarten program, or a registered family child care home. In all cases, high-quality care and early education can help to prepare them for future learning. Research shows that early childhood education supports children’s learning and development. We also know that, for nearly 15 million children under the age of 5, all available parents have a job. This means that many parents need child care so that they can work.
Child care is expensive. In many places, child care takes up a large share of a family’s income. For example, the average cost of child care in North Carolina is around $12,000 per year, while the state’s median household income is $72,400 per year. This means that the care for one infant can cost nearly 17% of the average family’s annual income!
There are programs to help. Federal, state, and local governments can help families find and pay for child care. This blog explains:
- How the federal Child Care and Development Fund supports state child care subsidy programs.
- How families and child care programs participate in subsidy programs.
- Decisions states make about eligibility, family payments, and provider payment rates.
- Other strategies that federal, state, local governments, and employers use to help families afford child care.
What Is the Child Care Subsidy?
The child care subsidy is a publicly funded benefit that helps eligible families pay for child care so they can work or go to school or training programs. Families often apply through a state or local agency. The subsidy pays for some or all of the cost of child care. How much it pays depends on how many people are in a family, the family’s income, and state rules.
Where Does Funding for the Child Care Subsidy Come From?
Quick fact
The CCDF also pays for activities that help states to strengthen child care systems. This includes things like health and safety enhancements, workforce development, and quality improvement.
Most of the funding for child care subsidies comes from the Child Care and Development Fund, or CCDF. The Administration for Children and Families runs this federal program. It provides funding to states, territories, and tribes to help eligible families pay for child care.
States manage CCDF funds and make many important policy choices. This includes where to set income eligibility limits. States also decide how much families have to pay for child care over and above the subsidy amount, and what the subsidy rate should be. To serve more families, states may add their own funding. They can also transfer funds from the Temporary Assistance for Needy Families (TANF) program to pay for child care subsidies and other CCDF-funded programs.
Quick fact
Federal rules allow states to transfer up to 30% of TANF funds to CCDF-funded programs. In 2023, 27 states took advantage of this opportunity.
Who Can Take Part in the Child Care Subsidy Program?
Families. Federal rules allow states to set income eligibility limits as high as 85% of the state’s median income for federally funded subsidies, although states may establish lower limits to prioritize the families with greatest need. For example, if a state’s median income for a family of four were $50,000, families would have to earn less than $42,500 to qualify for those federal subsidies. States may use their own funds to provide subsidies to families earning more than the federal limit.
To qualify, families must meet their state’s income requirements, have a child under age 13; and need child care because they are working, attending school, or participating in job training. Additional provisions may apply to children with disabilities or families receiving protective services. States also make other policy choices that affect eligibility and access. (Learn more about CCDF policies here.)
Often, more families need help paying for child care than there is funding available. This means that not all families that qualify for the subsidy program end up receiving the subsidy to help pay for child care. States may set income limits below the federal maximum, prioritize funding for particular children/families, or place eligible families on waiting lists until funding becomes available. Prioritized children/families may include military families, families experiencing homelessness, families of children with disabilities, families receiving protective services, families with a parent who works in early childhood education, or other groups identified by the state. State eligibility limits, priority policies, and waiting-list practices vary. Readers can compare policies through the CCDF Policies Database.
Once a family gets approval for a subsidy, they must find a child care provider that accepts it.
Child care programs. Child care programs also have to meet certain requirements to be eligible to receive subsidy payments. All programs must meet health and safety standards to take part. These standards may vary by state. Some states require programs to meet certain quality indicators. This may include staff education or training requirements. It can also include certain adult-to-child ratios.
Families can look for programs that accept the subsidy near where they work or live and enroll their child. The subsidy may cover some or all of the program cost. This depends on the family’s circumstances and on state rules. Some states require parents to pay part of the cost of care. This is known as a “parent fee.”
States pay the child care programs in different ways. Some states pay programs each month for care provided to families using subsidies during the previous month. Other states pay programs at the beginning of the month based on the projected care for that month. Programs must then return any money they did not use, such as when a child is absent.
How Do States Decide on the Subsidy Amount?
The main goal of the child care subsidy is to help families access child care programs where they live. One of the most important policy decisions that states make is the amount of the subsidy.
These choices involve important strategic-finance considerations. States must balance family access, provider stability, workforce compensation, program quality, and the number of families that available funding can support. Examining both the prices families pay and the cost of providing care can help state leaders understand these tradeoffs and make more informed funding decisions.
Quick fact
In many cases, a program’s tuition reflects what families in the community can afford, not the actual cost of providing child care. As a result, child care programs often rely on unpaid time, donated resources, or other supports to stay open.
Subsidy rates that are based on the cost of providing care, instead of the price that families can afford, are more likely to help support a stable and sustainable child care market.
Most states use a market rate survey (MRS) to help set subsidy rates. In this process, the state often works with a research partner. The state collects information about the prices child care providers charge to families who do not use subsidies. The state then uses this information to set a subsidy rate that helps families access a reasonable number of child care options near where they live or work.
Some states seek approval from the federal government to use an alternative rate model, to set subsidy rates. This means that the state uses information about the actual cost to provide child care to set rates. States may estimate the cost of care under different conditions, such as for different class sizes, teacher qualifications, quality standards, and locations. They then use these estimates to set subsidy rates that help families to pay for child care. Child care subsidies that are based on actual cost estimates also help child care programs cover their costs and stay open.
Even when states use an alternative rate model, tuition information from the MRS can still be useful. When states compare the cost of providing care with the tuition that programs charge, they can make informed funding and policy decisions. This information can help states to answer questions like:
- How much do child care programs charge families, and how does this cost compare with the costs programs have to provide care?
- Where are the gaps between tuition and the actual cost of care the largest within the state?
- How do subsidy rates that the state is currently paying compare with both of these numbers (the tuition that programs charge and the estimated cost of providing care)?
- How high would subsidy rates need to be for child care programs to pay competitive wages for their staff?
Beyond Subsidies: How Else Do Federal, State, and Local Governments Help Make Child Care Affordable?
The child care subsidy is one way that public funding helps families to pay for early childhood education. But it is not the only way. Exhibit 1 lists some examples of other federal, state, and local funding and policies that help families pay for child care.
Exhibit 1. Examples of Policies and Funding Sources That Help Families Pay for Child Care
| Example of support | Description |
|---|---|
| Federal tax benefit: Dependent care flexible spending account (FSA) | A dependent care FSA lets workers set aside some of their pre-tax income to pay for child care and other costs. This can help to reduce a family’s taxable income. It can also help to offset the cost of care. In 2026, the annual amount that workers can set aside increased from $5,000 to $7,500 per household. |
| State Child Care Subsidy Expansion: Vermont | The Vermont Child Care Financial Assistance Program provides subsidies to families on a sliding scale, instead of just a single qualifying income threshold. Families with incomes at 175% to 575% of the federal poverty level (FPL) may qualify. This helps the state to support families across a wider range of incomes than those programs that serve families with very low incomes. |
| State Child Care Subsidy Expansion: New Mexico | New Mexico used funds from the Early Childhood Trust Fund (ECTF) and the Land Grant Permanent Fund to expand their Child Care Assistance program and on November 1, 2025, they become the first state in the nation to offer no-cost Universal Child Care (UCC). Through this program, the state offers free child care for all families regardless of income (other qualifications may apply). Learn more here. |
| Public-Private Partnerships: Michigan Tri-Share Program | Michigan’s Tri-Share program helps employers offer child care as a benefit. Tri-Share splits the cost of child care among the employer, the family, and the state; each pays one third. The program supports families that do not qualify for the state’s child care subsidy program, but that instead earn wages just above the threshold for eligibility. This is between 200% and 400% of the FPL. |
Child care subsidies, tax benefits, state investments, and employer partnerships illustrate the different ways that public and private resources can help families pay for early childhood educational experiences. These strategies can also affect provider participation, program stability, and the supply of child care available to families. Their effects depend on how each strategy is designed, funded, and implemented. Understanding these choices can help policymakers make more informed decisions about how to make early childhood education more affordable while supporting a stable child care system.
