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Lawmakers in Maine Aim to Help Families Afford Child Care Through Tax Code Improvements

By: Susanna Birdsong, FellowPosted on April 15, 2015 Issues: Family Tax Credits

Several presidential hopefuls have announced their candidacies in recent weeks, and regardless of their party affiliation, one issue seems to be on everyone’s list of talking points: American families are struggling to make ends meet, in large part due to the high cost of child care.

Some Maine legislators aren’t waiting for the 2016 elections. This legislative session, they are attempting to update and improve their state tax credit for child care expenses—and families in the state could really use the help! The average cost of center-based child care for an infant was $9,360 in 2012, about the same as the average tuition and fees at a Maine public university ($9,471) [PDF].

Specifically, the bill that has been introduced in Maine would increase the value of the Maine Child Care Credit—which is based on the federal Child and Dependent Care Tax Credit – in two ways:

  • First, it would increase the percentage of the federal credit that may be claimed for purposes of the Maine credit from 25 percent to 100 percent; if high-quality care is used, the percentage would increase from 50 percent to 200 percent. This would quadruple the value of the current Maine Child Care Credit, and offer more meaningful assistance vis-à-vis the average costs of child care in Maine.
  • Second, it would remove the current $500 limit on the refund that the tax credit could provide—making it more valuable to lower-income families with little, if any, tax liability.

These improvements would help Maine parents afford the child care they need to get and maintain stable employment—and to provide their children the early education experiences they need for success in school and life.

Families in other states could use more help too. The average annual cost [PDF] of full-time care for an infant in center-based child care ranges from $4,863 in Mississippi to $16,430 in Massachusetts. It’s safe to say that no matter where working families live, child care consumes a large portion of their monthly budget—and this is especially true for lower-income families. On average, poor families with children under age five spend 36 percent of their income paying for child care. Yet it’s a very necessary expense—without child care, families will have difficulty entering or remaining in the workforce.

Although the federal tax code provides some assistance to working families who have child care costs, the federal Child and Dependent Care Tax Credit [PDF] doesn’t come close to addressing the actual cost of child care. And although it’s structured to be more valuable to families with lower incomes, in reality (because it only benefits those with federal tax liability) it is a more meaningful form of assistance for higher-income families. In short, the federal tax credit aimed at helping families afford child care could use some work. Fortunately, several bills have been introduced in Congress that would significantly improve the credit, including for low-income families.

Over time, many states (26 to be exact!) have enacted their own versions of the Child and Dependent Care Tax Credit (many calculated as percentage of the federal credit). And state legislatures continue to tweak these existing state credits to make them more valuable to working families. For example, just last year Colorado and Iowa amended their child care tax credit provisions to ensure that lower-income families in their states would benefit fully from the credits going forward.

We hope that this time next tax season Maine families—and families across the country—are benefitting from improvements to child care tax credits!