Update on Child Care Funding - Frequently Asked Questions
The Tennessee Department of Human Services (TDHS) is committed to helping working families and is proud to collaborate with child care providers and quality partners who facilitate child care solutions that benefit Tennessee’s workforce, employers, and young Tennesseans in care. Many of the Department’s programs are funded and adjusted based on the guidelines of federal partners. Federal funds are used for a variety of child care programs including Smart Steps Child Care Payment Assistance and initiatives that help child care providers to promote quality care for all.
Federal Funding Changes Affecting Child Care Services in Tennessee
In the early 2020s, grants calculated based on National School Lunch participation, population and income per capita factors (the federal grant award funding formula) and COVID-19 pandemic response funding made it possible for Tennessee to increase investments in Smart Steps and supports available to child care providers.
With COVID-19 investments ending on September 30, 2024, and the Child Care Development Fund (CCDF) discretionary award to Tennessee being reduced by approximately $44.5 million for the 2025 fiscal year, adjustments were required. As our state implements changes based on current budgetary allotments, updates will strategically focus available funds to prioritize the needs of families with minimal disruption.
How Will Funding Changes Impact Tennessee Families?
Families enrolled in the Smart Steps Child Care Program will be impacted by funding adjustments:
Families receiving Smart Steps Payment Assistance will continue enrollment:
Families participating in Smart Steps on August 26, 2025, will remain enrolled until the end of their 12-month eligibility period. These families will have the option to renew enrollment based on eligibility criteria at time of redetermination.
Base reimbursement rates will largely remain the same:
Base reimbursement rates paid to child care providers on behalf of families will remain the same for families enrolled in the Smart Steps Program.
Co-payment amounts may change for some families:
In 2024, TDHS structured co-pays so that families with incomes below the 150th percentile of Federal Poverty Level would have their co-pays waived. Beginning, October 1, 2025, every family approved for child care payment assistance, will be assessed a 5% co-pay based on their income. Families approved for Child Care Payment assistance through Families First, Early Head Start partnership, Mental Health and Substance Abuse, and services through the Department of Children’s Services (DCS) will continue to have waived co-pays. Click here for details on eligibility limits and co-pay fees.
Some differentials will be eliminated:
Starting October 1, 2025, reimbursement rate differentials will be eliminated for toddlers and eliminated for participants living in child care deserts or distressed counties and non-traditional hour care. The 15 percent differential for children with disabilities and infants will remain as it was prior to October 1, 2025. There have been additional adjustments to the QRIS bonus levels effective January 1, 2026. The current Reimbursement Rate Chart can be found by clicking here.
A list of Child Care Reimbursement Rates is available online:
To view a chart with details on the child care reimbursement rates that went into effect January 1, 2026, click here. Participants can also review their case and the latest updates via the One DHS Customer portal at OneDHS.TN.Gov.
How Will Funding Changes Impact Families That Seek to Apply for Smart Steps After August 26, 2025?
A waitlist has been activated:
Budget adjustments will impact the capacity of the Smart Steps program, and a waitlist was implemented on August 26, 2025. Families interested in applying for child care payment assistance should visit the One DHS Customer Portal and follow instructions based on their family’s situation.
Families and children may be eligible for Child Care Payment Assistance based on participation in certain programs administered by Tennessee’s state agencies:
Families and/or Children will continue to be eligible to enroll in child care payment assistance if:
- They are participating in Families First or SNAP E&T
- They are eligible through Transitional Child Care and At-Risk Child Only
- They qualify according to Teen Parent Child Care Payment Assistance standards
- The child is authorized through referrals received from the Tennessee Department of Children’s Services for Foster Care (SSC), Adoption Assistance (SAS) or Non-State Custody (SNC) child care payment assistance.
How Will Funding Changes Impact Child Care Providers and Professionals?
TDHS is proud to collaborate with child care providers to meet the needs of Tennessee families and is focused on offering these partners transparency as funding changes impact services:
Co-pays changed starting on October 1, 2025
Adjustments to co-pays and differentials for some child care subsidy payments went into effect on October 1, 2025. A list of those rates can be found by clicking here.
Some differentials were eliminated:
The TDHS Child Care Certificate Reimbursement Rates are structured to support affordable child care for families eligible and approved for Child Care Payment Assistance (Subsidy/Smart Steps) through the Child Care Certificate Program. Starting October 1, 2025, differentials were eliminated for toddlers and eliminated for participants living in child care deserts or distressed counties and non-traditional hour care. The 15 percent differential for children with disabilities and infants remains as it was prior to October 1, 2025. There have been additional adjustments to the QRIS bonus levels effective January 1, 2026. The current Reimbursement Rate Chart can be found by clicking here.
Families seeking to apply for Smart Steps may ask to be placed on a waitlist:
Families seeking to apply for Smart Steps after August 26, 2025 will be directed to the waitlist. Families interested in applying for child care payment assistance should visit the One DHS Customer Portal and follow instructions based on their family’s situation.
Resources for child care providers will be impacted by budget changes:
The availability of certain resources for child care providers and professionals changed based upon budgetary updates. A list of resources for providers are available on the TNPAL, Training and Professional Development Resources page. Child care professionals can and should continue to monitor options available from former TDHS partners as these community organizations may continue offering services based on their own mission and resources.
How Will Funding Changes Impact Partnerships?
TDHS values partnerships that effectively strengthen families and the child care providers that serve these families, and will continue to keep quality partners informed about the implications of funding changes:
Some formalized partnerships may be changed, postponed or discontinued:
Starting October 1, 2025, TDHS will conclude contracts with some of our established partners. Contracts with other partners will be adjusted based on the needs of Tennessee families and the availability of resources. Partners have been contacted directly with information specific to their organization.
TDHS is committed to solutions and transparency:
Access to child care is important for families across Tennessee, and TDHS remains committed to seeking innovative funding strategies and building strong partnerships to continue supporting providers, the early childhood workforce, and families throughout the state. Our department will also continue working closely with our federal partners to identify solutions and will share updates as new information becomes available.