The Child and Dependent Care Tax Credit Improvement Act Introduced in the House
Last month, Representative Val Demings (D-FL-10) introduced the Child and Dependent Care Tax Credit Improvement Act of 2017 (H.R. 2238). The bill improves the Child and Dependent Care Tax Credit (CDCTC), which is designed to help families meet the costs of the child or dependent care they need in order to work. Currently, the credit reduces a family’s taxes by a percentage of their eligible 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.
Even though the CDCTC is intended to be more valuable for families with lower incomes, it provides limited help to low- and moderate-income families because it is not refundable, meaning 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. A single parent with two children and an Adjusted Gross Income (AGI) of about $21,450 (in 2016) would not be able to claim the CDCTC, because he or she would have no tax liability. The expense limits ($3,000 for one child or $6,000 for two or more children) also 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.
The Act would make the CDCTC fully refundable, which means low-income families would be able to receive the full amount of the CDCTC for which they are eligible. Simply making the CDCTC refundable would make it available to over one million additional families. Second, the bill would increase the maximum amount of child care expenses that a family can claim for the credit, making these limits closer to the actual cost of child care. And finally, Representative Demings’ bill would make the CDCTC more valuable by increasing the percentage of expenses families can receive as a credit. What would this mean for families?
A family with AGI of $15,000 and $2,000 in child care expenses is currently eligible for a credit of $700, but couldn’t take advantage of the credit because they lack tax liability. Under Representative Demings’s proposal, this family would be eligible for a credit of $1,000 and could receive it as a refund.
A family with AGI of $50,000 and $5,000 in expenses for one child is currently eligible for a credit of $600 – if they had enough tax liability to apply the credit. Under Representative Demings’s proposal, this family would be eligible for a credit of $2,500, regardless of their tax liability.