Report Federal Funding Streams for Child Care and Early Childhood Education

Funding Streams Specifically for Early Childhood Education and Care

The following funding streams are designed to support early childhood programs that cover at least some portion of the birth through 5 age range.

Child Care and Development Fund (CCDF)

CCDF is designed to help states, territories, and tribes create child care subsidy programs for low-income families. The CCDF funding stream combines both mandatory and discretionary funding for states.

Child Care Entitlements to the States (CCES)

CCES funding is mandatory and allocated in two separate parts. One part is a fixed amount each year that has no matching or maintenance of effort (MOE) requirements of states. The fixed amount was $2.92 billion annually until the American Rescue Plan Act permanently increased the appropriation to $3.55 billion annually, beginning in FY21.

The second part is an amount based on the share of children under age 13 and includes both MOE and matching requirements. To meet the MOE requirement, each state must spend 100% of the amount it spent on child care programs through the Aid for Families with Dependent Children (AFDC) program in the mid-1990s. To meet the matching requirement, states must match their MOE funds with state dollars at the Federal Medical Assistance Percentage rate.

States must spend at least 70% of CCES funds on families that are receiving, transitioning out of, or at risk of needing Temporary Assistance for Needy Families (TANF) benefits. States may also transfer up to 30% of funds from federal TANF block grants to CCDF.

Child Care and Development Block Grant (CCDBG)

CCDBG funds are discretionary, meaning funding is subject to annual appropriations. CCDBG has seen several large increases in funding levels in the last several years.

Prior to FY18, CCES was funded at a higher level than CCDBG. This changed with FY18 appropriations that nearly doubled CCDBG funding from $2.9 billion to $5.2 billion, driven mainly by the need for additional funding to implement the 2014 CCDBG Act reauthorization. CCDBG appropriations continued to increase during the pandemic, including through supplemental pandemic relief funding. In the last two fiscal years, CCDBG received another significant increase in annual funding: 30% in FY23 and 9% in FY24.

Though CCES and CCDBG funding amounts are determined differently, there are overarching elements that cut across both programs under the CCDF umbrella.

Head Start, Early Head Start, and Early Head Start-Child Care Partnerships

The Head Start program provides education, nutrition, health and other support services to children and families in poverty, with an emphasis on parent engagement. The program is comprised of Head Start preschool for children ages 3 through school age and Early Head Start for children ages 0-2 and pregnant women. Early Head Start-Child Care Partnerships are competitive grants that allow Early Head Start grantees to partner with local child care providers who serve children in low-income families. All Head Start grants flow directly to local public and private organizations that run early childhood programs which can be center-based, home-based, or another locally designed delivery method.

Head Start funding has steadily increased in the last decade and has received several supplemental appropriations to address the needs of young children and families in the aftermath of natural disasters. However, Head Start funding levels do not enable states to serve all eligible children. Additionally, a recent GAO report found that the Head Start allocation formula in statute does not account for changes in child poverty rates over time, leading states with increasing child poverty rates to serve a lower proportion of eligible children and states with decreasing child poverty rates to receive relatively higher levels of funding compared to states with increasing rates.

Preschool Development Grants Birth Through Five (PDG B-5)

PDG B-5 is a competitive grant program designed to help states and territories improve coordination and collaboration between existing early childhood systems through a mixed-delivery model. PDG B-5 includes two kinds of grants: a one-year planning grant and a three-year renewal grant. Both grants require a 30% non-federal match to the federal funds provided.

An HHS report to Congress found that states have used PDG B-5 grants for a range of activities such as family engagement, integrating various early care and education systems, and expanding or revising quality standards.

Since the start of the program in 2018, 54 states and territories have received planning grants and 48 have received renewal grants. There has been widespread interest in the program, with demand for renewal grants exceeding the funding allocated to the program.

Individuals With Disabilities Education Act (IDEA)

IDEA provides federal funding to states and school districts to support the cost of early intervention, education and related services for children and youth with disabilities. The law also establishes requirements for identifying children with disabilities and providing appropriate services and educational support by age range. IDEA requires that states supplement, not supplant, funding for students with disabilities.

IDEA Part B, Section 619: Special Education Preschool Grants

Part B, Section 619 of IDEA provides a preschool formula grant to states who provide a free appropriate public education to all children ages 3-5 with disabilities. Currently, all states receive Section 619 funding. Depending on state law, Section 619 funding may be used to serve 2-year-old children.

Child Care Access Means Parents in Schools (CCAMPIS)

CCAMPIS is a competitive grant program that helps institutions of higher education (IHEs) provide subsidized child care on or near campus for low-income student-parents attending undergraduate or graduate school. IHEs must meet certain requirements to be eligible for the grant, including leveraging institutional resources and using a sliding fee scale for child care. Student-parents who receive CCAMPIS subsidies may also receive other federal child care for which they are eligible.

Tax Credits

There are several federal tax credits designed to help increase access to child care for families. Eligibility, amount and process differ, though families may be able to benefit from multiple credits. While none of the tax credits provides funding to states, the credits can benefit children, families and employers in every state, and many states have created their own state-level versions of these credits.

Child and Dependent Care Tax Credit (CDCTC)

The CDCTC is a non-refundable tax credit intended to defray the costs of child care for children under age 13 or care for adult dependents. Eligible parents can claim a percentage of their child care expenses, up to a limit of $3,000 for one child or $6,000 for two or more children. The percentage of expenses families can claim ranges from 20% to 35%, depending on income level.

Child Tax Credit (CTC)

The CTC is a partially refundable tax credit for families with children under age 17 who have an income of at least $2,500. Parents can receive a maximum of $2,000 per child, with the specific amount calculated based on household income and number of children. Families can use money from the CTC to cover any needed expenses, including child care.

45F Tax Credit for Employer-Provided Child Care

The 45F is a non-refundable credit designed to incentivize employers to provide child care options for employees by allowing businesses that do so to reduce their income tax liability. Eligible businesses can receive 25% of qualified child care expenditures plus 10% of qualified child care resource and referral expenditures, up to a total of $150,000 per year.