Posted on July 15, 2016 Issues: Family Tax Credits Federal Tax Policy Tax & Budget

Child care workforce homepageParents can’t go to work without child care.  But child care is a major expense for working families, and consumes an even larger share of lower-income families’ budgets.

For over 60 years, Congress has offered families assistance paying for child care expenses they incur in order to work, through the tax code.  And the tax assistance provided through the federal Child and Dependent Care Tax Credit (CDCTC) was designed to be most generous for lower-income families.  But the tax benefits that the CDCTC, under current law, offers to the families who need the most help paying for child care, are actually quite limited, because the credit is not refundable. And because the parameters of the CDCTC are not indexed for inflation, the credit loses value over time

Yesterday, Senators Angus King and Richard Burr introduced bipartisan legislation that would address these significant flaws in the current CDCTC. The Promoting Affordable Child Care for Everyone (PACE) Act would make several significant improvements to the credit, including:

  • making the credit refundable,
  • increasing the value of the credit for all families, and
  • indexing the parameters of the credit to inflation.

The PACE Act would also increase the value of employer-sponsored cafeteria plans for child and dependent care expenses.

The changes to the federal CDCTC proposed under the PACE Act would provide more meaningful tax assistance to working families, especially lower-income families.  Making the credit refundable, alone, has been estimated to allow over a million families to claim this tax credit for the first time.  The PACE Act, if enacted, thus has the potential to make a real difference in the lives of working families, especially lower-income families, across the country. 

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