I filed my Tax Year 2019 tax returns—but perhaps you haven’t yet. If you paid child or dependent care expenses in 2019, or if you’re a child care provider or advocate who knows families that did, pay attention!
We know that many parents struggle to afford high-quality, affordable child care. The federal Child Care and Development Block Grant (CCDBG) can help families pay their child care bills throughout the year, but insufficient funding means that only a fraction of eligible children receive CCDBG assistance. So for some families, tax provisions for child and dependent care expenses can help. The federal government and most states have some type of child and dependent care (CADC) tax provision.
Tax forms can seem full of jargon, so let’s help break down at least one part of them. CADC tax provisions help lower the amount of taxes some families owe and sometimes provide tax refunds. CADC tax provisions can be tax credits—refundable or non-refundable—or tax deductions. Here’s how they work:
- Refundable credits lower the amount of taxes a family owes by a set amount. If the credit amount is higher than the family’s income tax liability, they provide a refund.
- Non-refundable credits lower a family’s income tax liability by a set amount but don’t provide refunds. If that credit amount is greater than their income tax liability, then they don’t get any money back from the IRS. The federal Child and Dependent Care Tax Credit is an example of a nonrefundable CADC credit.
- Tax deductions reduce a family’s taxable income, which then lowers their tax liability. The deduction value depends on the family’s tax rate, so they’re worth less for families with lower incomes, and more for families with higher incomes and higher tax rates. They are worth absolutely nothing to families who don’t owe any income tax.
When you file federal and state returns, make sure you claim your CADC tax credit or deduction, if you can. Check our map to find out if your state has a CADC tax provision.
But before you get started on your taxes, we want to flag changes to state CADC tax provisions for Tax Year 2019:
- Several states increased the value of their CADC credit! Colorado increased the value of its Child Care Expense Tax Credit for moderate-income families. Families with a federal Adjusted Gross Income (AGI) of $60,000 or less can now access a 50 percent match of the federal credit they receive. Kansas increased its CADC credit from a 12.5 percent (2018) to 18.75 percent (2019) match.
- Colorado extended its Low-Income Child Care Expenses Credit for eight more years, through Tax Year 2028 (filed in 2029). This is a big win for low-income families!
- The District of Columbia made its Keep Child Care Affordable Tax Credit permanent. This credit is worth up to $1,000 per eligible child but isn’t tailored to assist low-income families. More funding for direct assistance through the Birth-to-Three for All DC Act of 2018 and/or making its other child care credit refundable would significantly help low-income families who need the most help accessing child care.
- Maryland made its Credit for Child and Dependent Care Expenses refundable for families with incomes of $50,000 or less—$75,000 for filers who are married and filing jointly—and increased the credit amount and income limits. Estimates show that more than 90,000 additional families would be able to claim the credit.
- Massachusetts has a deduction, not a credit, for child and dependent care expenses. Massachusetts reduced its individual income tax rate down to 5.05%, which lowered the maximum value of the deduction to $242 for one child or dependent and $485 for two or more children or dependents.
- Two states have annual changes to CADC tax credits built into their statutes. Minnesota increases its CADC tax credit income thresholds for inflation each year. Oregon makes its Working Family Household and Dependent Care Credit available to families making 300 percent or below of the Federal Poverty Level (FPL). Each year, the FPL changes. So, the dollar threshold for the cutoff is higher than last year.
That’s our roundup of state CADC tax provision changes for Tax Year 2019! In addition to tax benefits for child and dependent care expenses, families could also qualify for the federal and state Earned Income Tax Credits and the Child Tax Credit. Families need all the help they can to pay for everyday expenses, so don’t miss out on the opportunity to take advantage of these tax provisions!