CHILD CARE SUBSIDIES
WHAT ARE CHILD CARE SUBSIDIES AND WHY ARE THEY IMPORTANT?
Child care subsidy programs provide financial assistance to help make child care more affordable for families with low incomes in which parents are working or enrolled in education or training programs.1 Subsidy programs are also intended to promote parental choice of care arrangements, support the supply and enrollment of children in high-quality care, and enhance child development.
Subsidy programs are funded through a combination of federal and state dollars, but are administered by states. States currently have considerable flexibility in setting rules on program policies and administration (e.g., eligibility requirements, family copayment levels, and provider policies), resulting in substantial variation in state subsidy policies. States also determine the name of their programs, which can include terms such as assistance, scholarships, or subsidies. For consistency, we refer to all programs across states as child care subsidies.
In February 2024, the federal government released a new rule setting minimum standards on some policy elements that have historically been determined by states, including family copayment levels. Many of these changes, which must be implemented by 2026, aim to alleviate the cost burden of child care on families.
Child Care Is Not Affordable for Many Families, Especially Families with Lower Incomes
Families with low incomes, who are disproportionately Black, Native American, and Hispanic, face barriers to accessing affordable, reliable, and high-quality child care, especially for the youngest children.
The average annual cost of center-based care in 2023 was $14,019 for infants, compared to $10,962 for 4-year-olds.2 The cost of center-based infant care ranges from 22.8% to 52.5% of median income for single parents and from 7.1% to 18.0% of median income for married couples, depending on the state.
Although family child care is typically less expensive than center-based care, cost figures remain high relative to income for families with infants and toddlers.3
Child Care Subsidies Can Increase Access to Child Care and Help Parents Work
By providing access to child care, subsidy programs may allow more parents to work or complete education and training programs.4 Subsidies may also support healthy child development when care settings are high quality and stimulate children’s early brain development.5,6
Increased Parent Employment and Access to High-Quality Child Care Should Result in Improved Long-Term Child Outcomes
Child care subsidies may impact children’s social-emotional and cognitive development through two main pathways: (1) indirectly, through higher family income from increased employment, which may reduce family stress, boost access to resources, and limit adverse childhood experiences; and (2) directly, through access to high-quality child care that may provide enriching and safe environments for children that support positive early development.7,8,9,10
Search the Prenatal-to-3 Policy Clearinghouse for an ongoing inventory of rigorous evidence reviews, including more information on child care subsidies.
WHAT IMPACT DO CHILD CARE SUBSIDIES HAVE AND FOR WHOM?
Research on child care subsidies has focused mostly on subsidy receipt and higher state subsidy expenditures, which are linked to improved access to needed services (e.g., use of single, formal care arrangements), the ability of parents to work (e.g., higher maternal employment), and to increased earnings, promoting sufficient household resources.
Although the current evidence base does not provide clear guidance to states on the most effective way to implement these programs, research does suggest that expanding income eligibility, lengthening recertification periods, increasing provider reimbursement rates, and reducing family copayments can help promote families’ access to child care subsidies.
More Research Is Needed to Determine the Potential of Child Care Subsidies to Reduce Disparities
No strong causal studies directly assess the effectiveness of child care subsidies at reducing disparities in outcomes for parents and children by race or ethnicity. However, a legacy of discriminatory policy choices to limit aid to families of color makes equal access to child care subsidies a continuing concern.
A 2019 report provided an analysis of state policies and practices in multiple states, each with more than 80% of Hispanic children in the state living in low-income communities. The report indicated that considerable variation exists among these states in terms of their child care subsidy policies and practices.11 About half of the states currently have policies and practices (e.g., documentation requirements for immigration status, requirements for minimum weekly work hours) that might impose additional burdens for Hispanic families to access services.11
A 2022 follow-up report revealed that many local subsidy caseworkers and administrators actually engage in more restrictive practices than exist in official state policy.12 Research also reveals a significant gap between the percentage of Hispanic families in the US who are eligible for child care subsidies and the families who receive them; Hispanic children account for 35% of eligible children, but just 20% of the population served with child care subsidies.13
More research is needed to establish whether child care subsidies contribute to reducing disparities in outcomes for parents and children by race and ethnicity, and the specific policy levers that states should adopt to ensure equitable access to child care.
For more information on what we know and what we still need to learn about child care subsidies, see the evidence review on child care subsidies.
WHAT ARE THE KEY POLICY LEVERS TO INCREASE ACCESS TO CHILD CARE SUBSIDIES?
In contrast to the evidence for the four state-level policies that are included in this Roadmap, the current evidence base does not identify a specific policy lever that states should adopt and fully implement to ensure families have equitable access to affordable, high-quality care.
We identified three key policy levers that states can use to increase access to their child care subsidy program and provide families the support they need. These policy levers align with federal guidance and requirements.
The three key state policy levers include:
- Set income eligibility limits at or above 85% of the state median income (SMI),
- Limit copayments to 7% or less of a family’s income, and
- Set reimbursement rates at or above the 75th percentile of the state market rate survey (MRS) or use a cost estimation model to set reimbursement rates.
Key Policy Lever: Set Income Eligibility Limits at or Above 85% of the State Median Income
The income eligibility limit at which families qualify for a child care subsidy varies considerably across states. States set subsidy eligibility at a specific dollar amount of family income, relative to the family size and/or structure. Federal eligibility requirements restrict states from setting income eligibility limits for subsidies above 85% of the state median income (SMI) unless a state fully funds the program for families above this limit.
States set three income limits for child care subsidies. The initial eligibility limit represents the maximum income at which families can first qualify for subsidies; the continuing eligibility limit allows families to remain eligible during the recertification process if their income increases slightly; and the exit eligibility limit is the maximum income a family can reach at any point before they stop receiving a subsidy.
Expanding income eligibility limits would allow more families to access care. However, without additional state or federal funding for the subsidy system, the expansion of access to families with higher levels of income may result in a trade-off that requires states to reimburse providers at a lower rate.
Most states (35) set their initial income eligibility limits below 85% of the SMI, which means that fewer families are eligible for subsidies than federal law permits. In fact, 11 states set their initial income eligibility limits at or below 50% of the SMI.
In contrast, five states set their initial income eligibility limit at 85% of the SMI, and 11 states set it to an even higher limit, which makes more families eligible for a subsidy (Arkansas, California, Maine, New Mexico, New York, Oklahoma, South Carolina, Texas, Utah, Vermont, and Virginia). In the last year, Kentucky and Kansas increased their initial income eligibility limits to 85% of the SMI. New Mexico has the highest initial income eligibility limit, at 162% of the SMI, and Georgia’s limit is the lowest, at 33% of the SMI.
The income eligibility limits set by states can also be understood as a percentage of the federal poverty level (FPL). Though the use of SMI to set eligibility provides for a more targeted and nuanced approach to determining income limits within a state, translating these figures to the FPL allows for a more direct and accurate comparison across states.
Initial eligibility varies considerably based on where a family lives, with 16 states setting limits at or above 250% of the FPL, and seven states setting limits at or below 150% of the FPL. In Vermont, families with incomes up to 575% of the FPL are eligible for child care subsidies, which is the highest income limit in the country. In contrast, families in Georgia must earn 103% or less of the FPL to be eligible for child care subsidies.
Key Policy Lever: Limit Copayments to 7% or Less of a Family’s Income
Families may be required to participate in cost-sharing for subsidized child care received, typically through copayments, and the cost burden placed on families with child care subsidies varies considerably across states.14 States can set copayment rates at a dollar value or as a percentage of the total cost of care based on various factors, including family size, structure, income, and number of children in care.
The federal government considers child care affordable for families if costs are 7% or less of a family’s income. In the last year, the federal government made this guidance official by requiring states to limit copayments to 7% of a family’s income. This rule went into effect in April 2024, with the option for states to request a waiver to extend their implementation period by 2 years.
Currently, families in 28 states pay 7% or less of their income in child care copayments. Among these states, Delaware, Michigan, New Hampshire, North Dakota, Tennessee, and Texas reduced their copayments in the last year, now requiring families to pay 7% or less of their income in copayments.
The maximum possible family copayment in states—calculated as a percentage of income for families of all incomes and sizes—ranges from 0% in Delaware and New Mexico to 27% in Ohio. Additionally, 22 states factor in the number of children in care when determining their total copayment, which results in higher copayments for families in nearly all of these states as the number of children in care increases.
See the impact of out-of-pocket child care costs on families’ resources in your state in our Policy Impact Calculator.
Key Policy Lever: Set Reimbursement Rates for Providers to Levels That Create More Equitable Access or Use Cost Estimation Models to Set Rates
The federal government considers state reimbursement rates at the 75th percentile or above—covering three-fourths of slots in the state based on an MRS—as providing low-income families with equal access to the child care market. However, market prices (i.e., what families are charged in the private market) may not fully represent the true cost of providing high-quality care, which includes fair wages and benefits for child care workers.
The persistent failure to adequately compensate providers, rooted in longstanding racist and sexist perceptions that devalue caregiving responsibilities, may lead to unintended consequences, such as providers’ being unwilling to accept subsidies or lower quality care for subsidized slots.15,16
The release of new MRS underscores the need for states to update reimbursement rates to ensure providers receive adequate reimbursement according to the current market. As of October 1, 2024, following the release of updated MRS in 29 states, only 13 states’ base reimbursement rates for infants and toddlers in center-based and family child care arrangements meet or exceed the federal equal access target of the 75th percentile—a decline from 23 states in 2023. Of the 13 states meeting the threshold, Missouri and Oregon increased their reimbursement rates in the last year to meet the equal access target.
States are also continuing to explore the option of using an alternative methodology to set reimbursement rates, typically meaning the use of a cost estimation model, rather than an MRS. Using cost estimation models can be a pathway toward setting reimbursement rates that are more representative of the costs that providers actually incur to provide high-quality care, rather than merely the price charged by providers, which represents what families are willing and able to pay. As of October 1, 2024, Colorado, the District of Columbia, New Mexico, and Virginia use cost models to set their reimbursement rates.
Comparing states’ base reimbursement rates to cost estimation models offers insights into how well the rates derived from the MRS align with the true cost of providing child care. Although not every state has developed its own cost model, Prenatal-to-Five Fiscal Strategies created a state-by-state model for the cost of base-quality care. This model shows that no state has base reimbursement rates for infants and toddlers in either center-based or family child care that fully cover the cost of base-quality care.17
In addition to setting rates based on market rates or cost estimation models, states can choose to set reimbursement rates based on tiered quality ratings. In several states, providers receive a higher reimbursement rate if they have a higher quality rating as determined by state standards. These tiered reimbursement rates may incentivize providers to pursue higher quality ratings and may also result in disparities in the level of resources providers have to improve facilities, staff compensation, and overall program quality. As a result, providers in different quality tiers may experience varying levels of financial stability and capacity to enhance their services.
A key consideration, highlighted by the new federal rule, is that private child care rates are sometimes lower than the reimbursement rates for child care subsidies. In some states, providers are restricted to receiving no more than their private rate, which can prevent them from accessing essential funding. The new rule encourages states to permit reimbursement rates to exceed private rates, ensuring providers can fully benefit from available subsidy funds.
The table below illustrates the difference between the 75th percentile of the market rate price and estimated true cost of care across states.
For more information on the state policy levers to increase access and affordability of child care subsidies see our State Policy Lever Checklists.
HOW DOES CHILD CARE SUBSIDY POLICY VARY ACROSS STATES?
In addition to variation within the key policy levers above, states vary in the distribution of the cost of child care, the total cost of care for families, and the number of families served.
The Cost of Child Care is Distributed Differently Across States Because of Variation in States’ Policy Choices
In the graphic below, the price of child care is based on either the price associated with the equal access target (75th percentile of the MRS) or the state’s base reimbursement rate, if higher. The total cost is distributed between the state, families, and, in some cases, providers. The state’s cost is the subsidy amount. The family’s cost includes the required copayment and any additional fees, if allowed. The provider’s cost covers any unreimbursed portion when the state does not permit collecting additional fees.
A family’s additional fee covers the difference between the reimbursement rate providers receive and the price providers typically charge to non-subsidized families (the private pay rate). In 11 states, providers are not allowed to charge families additional fees to cover the full market price of care. Although this approach decreases the cost burden on families, if additional costs remain, providers must absorb those losses, which may disincentivize them from accepting subsidized slots. Families’ total share of the cost of care includes these fees in addition to copayment contributions, also known as the out-of-pocket cost.
The variation across states on each of these elements is substantial, which leads to significant differences in the distribution of the cost of child care. In five states (Arkansas, Mississippi, Oklahoma, West Virginia, and Wyoming), the price of care amounts to approximately $850 per month or less for an infant in center-based care, whereas the price is more than approximately $1,700 in 16 states. In most states, families and providers must contribute some portion of the total cost of care for an infant in a center-based setting, however, in five states (Arkansas, Louisiana, New Mexico, South Carolina, and Vermont), the state fully covers the cost of care. In seven states (Maine, Massachusetts, Ohio, Oklahoma, Rhode Island, Washington, and West Virginia) the state reimburses providers at rates below the price of care, leaving providers to absorb the remaining costs.
Families’ Share of the Cost of Care Also Varies Across States
Variation across states in copayments and additional fees, as well as the extent to which state reimbursement rates cover the market price for child care, leads to wide variation across states in the share of the total cost of child care for which a family is responsible.
In the graphic below, the total price of child care is assumed to be the value of the equal access target in a state (the 75th percentile of the MRS) or the state’s base reimbursement rate, if higher. A family’s out-of-pocket child care expenses include both a required copayment and any additional fees to cover the difference between the base reimbursement rate and the price of care.
In several states, a family’s contribution to the total price of child care is nominal: for example, in five states, (Arkansas, Louisiana, New Mexico, South Carolina, and Vermont) families with incomes at 150% of the FPL with one child in care are not responsible for any of the total cost. And in Maryland, New York, and Oregon, these same families are responsible for less than 1% of the total cost. Families are, however, responsible for one-fourth or more of the cost of care in 12 states (Alabama, Alaska, Georgia, Hawaii, Idaho, Illinois, Kentucky, Mississippi, New Hampshire, Oklahoma, Pennsylvania, and Wisconsin).
State Allocations and Funding Streams for Child Care Vary, Leading to Variation in the Number of Families Served
States vary in how they leverage federal child care funding, which is divided into guaranteed and matching buckets. States can opt to maximize federal contributions by providing the full required amount of matching funds, and may allocate additional state general funds, to increase available supports. These choices directly impact the number of children served through subsidies.
States may also invest additional state dollars directly into their subsidy systems. Most often, these funds come from the state general fund, but many states are beginning to establish innovative, dedicated funding streams to support subsidy programs. New Mexico uses oil and gas revenue, Vermont implemented a payroll contribution, and Washington established a capital gains tax. Louisiana allocates revenue from sports betting and casino gambling, whereas Kansas and Missouri use funds from the Tobacco Settlement Agreement.
WHAT PROGRESS HAVE STATES MADE IN THE LAST YEAR TO INCREASE ACCESS TO CHILD CARE SUBSIDIES?
Although most of the funding for child care subsidies comes from federal sources, states have substantial flexibility in how they implement their programs. The policy progress described below generally represents state policies as of October 1, 2024. In the last year, several states made changes to their child care subsidy systems through legislation and/or agency action, including increased state funding, expanded income eligibility, improved affordability, and enhanced provider reimbursement rates.
Nearly One-Third of States Increased Funding for Child Care Subsidies
At least 16 states significantly increased their budget allocations for Fiscal Year 2025 to enhance child care programs. Maryland led the way with a $270 million increase, which raised its total investment in child care subsidies to $328.5 million. In Oregon, despite the budget being enacted in 2023, legislators allocated an additional $99.2 million for the child care subsidy program in the last year through its budget reconciliation bill. Pennsylvania increased its allocation for child care services–which includes funds for the state’s subsidy program–by 9.6%, adding $26.2 million. In 2024, Vermont began collecting a new payroll contribution and allocated $125 million to implement several transformative subsidy policies passed in the previous legislative session. Virginia also made substantial investments in child care subsidies to expand the number of available child care slots by allocating $169.8 million for FY2025 from the general fund to the child care subsidy program.
With this increased funding, many states chose to focus on raising provider reimbursement rates and supporting the child care workforce through wage supplements and related initiatives. Additionally, some states prioritized raising or maintaining income eligibility limits for subsidies and expanding access by funding new child care slots.
In recent years, a significant trend has emerged across the country to supplement state general fund allocations by establishing dedicated funding streams. This year, five states (Georgia, New York, Rhode Island, Tennessee, and Washington) introduced bills to create new, statewide funding sources for child care, though none of these proposals passed. These proposals included increases on income taxes, payroll taxes, and taxes on car services, as well as authorizing sports betting and gambling to dedicate the revenue to child care. Among the five states, Washington’s bill included the creation of a land trust to generate revenue for grants supporting child care providers in underserved areas.
Several States Expanded Eligibility
Expanding eligibility for child care subsidies was also a focal point for states this year, with 12 states increasing their initial income eligibility limits; two doing so through legislation (Maine and Vermont) and the rest through administrative action. Maine increased its initial income eligibility limit from 85% of the SMI to 125%, and Vermont implemented the largest increase, raising its initial eligibility from 102% of the SMI to 160%. In addition to raising eligibility, Vermont made changes to ensure that every eligible child receives assistance by making its subsidy program an entitlement program.
Of the 12 states that introduced legislation to modify child care subsidy eligibility this year, three states (Alaska, Delaware, and Rhode Island) enacted changes that will become effective in the future. Delaware enacted an initial eligibility limit increase from 185% of the FPL to 200%, which is pending implementation. Rhode Island will raise its limit to 261% of the FPL, up from 200%, effective January 2025. Alaska will increase the initial income eligibility from 79% of the SMI to 105%, effective January 2025.
States are also considering expanding eligibility by making certain populations—most notably child care workers—eligible for child care subsidies. In the last year, seven states introduced, and five enacted (Indiana, Iowa, Rhode Island, Utah, and Washington), legislation to make child care workers eligible for subsidies. Included in this list is Washington, in which employees of other early learning programs, including Head Start and Early Head Start, were added to the list of those child care workers who were already eligible for subsidies.
Many States Worked to Improve Child Care Affordability
As part of broader efforts to make child care more affordable, this year, several states made legislative or administrative changes to reduce family copayments. In 2023, 24 states met the 7% benchmark for affordability, and this year, the number rose to 28. The newly compliant states (Delaware, Michigan, New Hampshire, North Dakota, Tennessee, and Texas) either implemented 2023 legislation or made administrative changes. Delaware made substantial changes by waiving copayments for all families.
Alaska and Colorado also enacted legislation this year to cap family copayments at 7% of income. Once these changes take effect in January 2025 and August 2026, respectively, the states will join the list of those meeting the affordability benchmark.
Florida, Iowa, and Montana all reduced family copayments, though the payments still exceed the 7% threshold. In addition to these states, four states (Florida, Illinois, Massachusetts, and North Carolina) introduced legislation to reduce family copayments, although none passed this session. In total, 15 states reduced their family copayments by at least 1 percentage point since October 1, 2023.
Several States Enhanced Provider Reimbursement Rates
In the last year, ten states introduced, and seven enacted, legislation to increase reimbursement rates, primarily through their state budgets. In total, 23 states implemented increases to their base reimbursement rates for infants in center-based care since October 1, 2023. Notably, six states (Georgia, Kansas, Maine, Missouri, Montana, and Vermont) raised their rates by more than 25%, with Georgia and Missouri more than doubling their rates for infants in center-based care. Legislators in Michigan proposed automatic adjustments for inflation every year for reimbursement rates, but the bill did not pass this session.
In addition to increasing reimbursement rates, states continue to focus on developing alternative methodologies to set those rates based on the true cost of providing high quality care. In the last year, Colorado adopted reimbursement rates based on its newly developed cost model, joining the District of Columbia, New Mexico, and Virginia in using this approach, with more states expected to join them in the coming months. Alaska and Nebraska enacted legislation to allow for alternative methodologies to set their reimbursement rates; and New York, Tennessee, and West Virginia introduced similar legislation that did not pass this session.
For more information on each state’s progress on child care subsidies, find individual state summaries under Additional Resources below (and here).
ADDITIONAL RESOURCES
NOTES AND SOURCES
- Child Care and Development Fund, 45 C.F.R. § 98.20 (2019). https://www.govinfo.gov/app/details/CFR-2019-title45-vol1/CFR-2019-title45-vol1-part98/summary
- Child Care Aware® of America. (2023). Child care at standstill: Price and landscape analysis. https://www.childcareaware.org/thechildcarestandstill/#LandscapeAnalysis See Calculating National Prices, Methodology 3: Average of Program-Weighted Averages. Caution should be used comparing and interpreting price figures nationally; local context should be considered.
- Child Care Aware® of America. (2023). Price of care: 2023 child care affordability analysis. https://info.childcareaware.org/hubfs/2023_Affordability_Analysis.pdf. See Tables III (pp. 6-7).
- Schmit, S. (2019). CCDBG: Helping working families afford child care. CLASP. https://www.clasp.org/publications/report/brief/ccdbg-helping-working-families-afford-child-care
- American Academy of Pediatrics Committee on Early Childhood, Adoption, and Dependent Care. (2005). Quality early education and child care from birth to kindergarten. Pediatrics, 115(1), 187–191. Gale OneFile: Health and Medicine. https://doi.org/10.1542/peds.2004-2213
- Bradley, R. H., & Vandell, D. (2007). Child care and the well-being of children. Archives of Pediatrics & Adolescent Medicine, 161(7), 669-676. https://doi.org/10.1001/archpedi.161.7.669
- Ryan, R. M., Johnson, A., Rigby, E., & Brooks-Gunn, J. (2011). The impact of child care subsidy use on child care quality. Early Childhood Research Quarterly 26(3),320-331. https://doi.org/10.1016/j.ecresq.2010.11.004. This study provides an example specific to subsidies.
- National Institute of Child Health and Human Development Early Child Care Research Network. (2002). Early child care and children’s development prior to school entry: Results from the NICHD study of early child care. American Educational Research Journal, 39(1), 133–164. https://www.jstor.org/stable/3202474. This study provides an example specific to the link between quality and child outcomes.
- National Institute of Child Health and Human Development Early Child Care Research Network, & Duncan, G. J. (2003). Modeling the impacts of child care quality on children’s preschool cognitive development. Child Development, 74(5), 1454–1475. https://doi.org/10.1111/1467-8624.00617. This study provides an example specific to the link between quality and child outcomes.
- Vandell, D. L., & Wolfe, B. (2000). Child care quality: Does it matter and does it need to be improved? US Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation. https://aspe.hhs.gov/execsum/child-care-quality-does-it-matter-and-does-it-need-be-improved. This study provides an example specific to the link between quality and child outcomes.
- Gennetian, L. A., Mendez, J., & Hill, Z. (2019). How state-level Child Care Development Fund policies may shape access and utilization among Hispanic families. National Research Center on Hispanic Children & Families. https://www.hispanicresearchcenter.org/wp-content/uploads/2019/11/Hispanic-Center-CCDF-brief-FINAL1.pdf; The 13 states are: AZ, CA, CO, FL, GA, IL, NJ, NY, NM, NC, PA, TX, WA)
- Lin, Y., Crosby, D., Mendez, J., & Stephens, C. (2022). Child care subsidy staff share perspectives on administrative burden faced by Latinos applications in North Carolina. National Research Center on Hispanic Children & Families. https://www.hispanicresearchcenter.org/wp-content/uploads/2022/07/HC-NC-CCDF-brief-7.29.2022.pdf
- US Government Accountability Office. (2016). Access to subsidies and strategies to manage demand vary across states [GAO-17-60]. US Government Accountability Office. https://www.gao.gov/products/GAO-17-60
- National Center on Subsidy Innovation and Accountability. (2018). CCDF Family Co-payments. Office of Child Care, Administration for Children and Families, US Department of Health and Human Services. https://childcareta.acf.hhs.gov/sites/default/files/public/family_co-payment_brief_0.pdf
- Lloyd, C.M., Carlson, J., Barnett, H., Shaw, S., & Logan, D. (2021). Mary Pauper: A historical exploration of early care and education compensation, policy, and solutions. Child Trends. https://earlyedcollaborative.org/assets/2022/04/Mary-Pauper-updated-4_4_2022_FINAL.pdf
- Coffey, M. (2022, July 19). Still Underpaid and Unequal [Center for American Progress]. https://www.americanprogress.org/article/still-underpaid-and-unequal/
- Workman, S. & Capito, J. (2024, April). 50-state child care cost model [Data set]. Prenatal to Five Fiscal Strategies. https://www.prenatal5fiscal.org/childcarecostmodel
