This bill increases the tax credits for both household and dependent care expenses and employer-provided child care expenses.
Ryan Mackenzie
Representative
PA-7
This bill seeks to increase financial support for families by raising the tax credit amounts for both household and dependent care expenses, as well as employer-provided child care services. Specifically, it doubles the expense limits for the household and dependent care services credit and significantly increases the maximum credit for employer-provided child care expenses. These changes aim to alleviate the financial burden of child care for working families and incentivize employer-sponsored child care programs.
Bill Proposes Doubling Child Care Tax Credit Limits for Parents, Boosts Employer Incentive to $400K
This proposed legislation aims to make child care more affordable by tweaking two key parts of the tax code. First, it doubles the amount of money parents can claim for the household and dependent care tax credit – bumping the limit from $3,000 to $6,000 for one child, and from $6,000 to $12,000 for two or more kids (amending Internal Revenue Code section 21(c)). Second, it gives employers a much bigger incentive to help out, increasing the maximum tax credit they can receive for providing child care support from $150,000 to $400,000 per year (amending IRC section 45F(b)). Both changes would kick in for tax years starting after the bill becomes law.
More Breathing Room on Tax Day?
Let's break down that first part. Currently, if you pay for daycare, after-school programs, or other care so you can work or look for work, there's a cap on how much of those expenses you can use to calculate your dependent care tax credit. This bill doubles those caps. For instance, if you have two kids and spend $15,000 a year on eligible care, under current rules, only the first $6,000 counts towards figuring out your potential credit. Under this bill, you could count up to $12,000 of those expenses. It doesn't double the credit itself (that's still calculated as a percentage based on your income), but it significantly expands the amount of expenses eligible for that calculation. For families shelling out big bucks for care – which is pretty much everyone these days – this could mean more money back in their pockets come tax time.
Giving Businesses a Bigger Nudge
The second piece targets employers. The existing tax credit encourages businesses to offer child care benefits, like on-site centers or subsidies for employees' care costs. This bill more than doubles the maximum credit a company can claim, from $150,000 up to $400,000. Why does this matter? That larger potential tax break might make it financially viable for more businesses, particularly larger ones, to start offering or expand child care assistance. It's essentially a bigger carrot to encourage companies to help their employees manage the high cost and logistical challenges of finding reliable child care.
The Bottom Line
Essentially, this bill tries to tackle the child care affordability crisis from two angles: directly increasing the potential tax relief for parents footing the bill, and sweetening the deal for employers who step up to help their workforce. By raising the caps specified in sections 21(c) and 45F(b) of the tax code, the goal is to ease the financial pressure on working families and potentially expand the availability of employer-supported child care options. Keep an eye on this one – if enacted, these changes would apply to future tax years.