Yesterday, Senator Bob Casey (D-PA) introduced the Child and Dependent Care Tax Credit Enhancement Act of 2017, which Senators Sherrod Brown (D-OH), Ben Cardin (D-MD), Robert Menendez (D-NJ), Patty Murray (D-WA), Debbie Stabenow (D-MI), and Ron Wyden (D-OR) and have cosponsored. The bill would strengthen the federal Child and Dependent Care Tax Credit (or CDCTC), which is designed to help families meet the costs of the child or dependent care they need in order to work. Under current law, the credit reduces a family’s taxes by a percentage of their child or dependent care expenses. A family can claim up to $3,000 in expenses for one child or dependent and $6,000 for two or more children or dependents, for a maximum tax credit of $1,050 or $2,100, respectively.
Unfortunately, even though the CDCTC is more valuable for families with lower incomes than higher incomes, it provides limited help to low- and moderate-income families because it is not refundable. This means that families that qualify for a CDCTC larger than their tax liability are not able to receive a refund from the credit back from the IRS. Indeed, a single parent with two children and an Adjusted Gross Income (AGI) of about $21,250 (in 2016) would not be able to claim the CDCTC at all, because he or she would have no tax liability. In addition, the expense limits of $3,000 for one child or $6,000 for two or more children don’t reflect the current costs of child care: in many states, the average cost of child care for an infant exceeds the cost of in-state college tuition. And the percentage of expenses available to middle-income families (20% of expenses for families with AGI above $43,000, resulting in a tax credit of up to $600 for one child or $1,200 for two or more children) doesn’t provide those families enough help with their child care expenses.
Senator Casey’s bill would make important changes in the CDCTC. First, it would make the credit refundable – which, by itself, would make it available to over one million additional families. Second, it would double the amount of child care expenses a family can claim, to $6,000 for one child, and to $12,000 for two or more children, bringing it more in line with the actual cost of child care. It would also allow families to claim a larger percentage of their child care expenses. In addition, the Child and Dependent Care Tax Credit Enhancement Act would index the amounts for inflation, so the value of the credit does not decrease over time for families. The maximum families could receive would be up to $3,000 for one child or $6,000 for two children – and they would receive that full amount even if they owed little or no taxes.
|Maximum expenses for one child||Maximum expenses for two or more children||Maximum Percentage of expenses||AGI threshold for maximum percentage||Minimum percentage of expenses||AGI threshold for minimum percentage||Maximum CDCTC for one child||Maximum CDCTC for two or more children|
|Casey CDCTC proposal||$6,000||$12,000||50%||$120,000||20%||$178,000||$3,000||$6,000|
What would this mean for families?
- Right now, a family with AGI of $15,000 and $2,000 in child care expenses would be eligible for a credit of $700, but couldn’t take advantage of the credit because they lack tax liability. Under Senator Casey’s proposal, this family would be eligible for a credit of $1,000 and could receive it as a refund.
- Right now, a family with AGI of $50,000 and $5,000 in expenses for one child would be eligible of a credit of $600 – if they had enough tax liability to apply the credit. Under Senator Casey’s proposal, this family would be eligible for a credit of $2,500, regardless of how much tax liability they have.
Families are struggling to pay the high cost of the high-quality child care that they need to go to work and that their children need to support their development and be ready to succeed at school. The Child and Dependent Care Tax Credit Enhancement Act would be an important step towards giving these families the help they deserve.