More than two million working families stand to gain through a major expansion of government support for childcare, ministers announced today.
Even parents earning up to £149,000 will be eligible for the expanded scheme.
Under tax-free childcare plans, set out on the eve of the Budget, eligible families will receive up £1,200 a year for each child - to a maximum of 20% of their annual costs.
However the new scheme, which will replace the existing employer supported childcare programme (ESC), will not come into effect until late 2015 - after the next general election.
In order to qualify, both parents will have to be in work - or the one parent in the case of lone parent families - and each parent must be earning less than £150,000-a-year.
Initially it will cover children up to five years old, but will build up "over time" to include children under 12.
Ministers say that to start with, 1.3 million families will benefit - compared to 450,000 under ESC - eventually rising to around 2.5 million.
David Cameron said: "If Britain is going to succeed in the global race we must help those who work hard and want to get on.
"Too many families find paying for childcare tough and are often stopped from working the hours they'd like.
"This is a boost direct to the pockets of hard-working families in what will be one of the biggest measures ever introduced to help parents with childcare costs."
Deputy Prime Minister, Nick Clegg added: "Delivering tax-free childcare is the next step to ensuring all families can work and get on.
"The rising cost of childcare is one of the biggest challenges parents face and it means many mums and dads simply can't afford to work.
"This not only hurts them financially, but is bad for the economy too."
Education and Childcare Minister Elizabeth Truss said the new system would be a "very simple" process for parents.
She added that no-one would be worse off in "cash terms" under the new system.
"Everybody who is currently claiming employer vouchers will be able to continue claiming employer vouchers," she told BBC Breakfast.