The "Child Care Availability and Affordability Act" aims to make child care more accessible and affordable by expanding employer-provided child care credits, increasing tax-free dependent care assistance, and enhancing the household and dependent care tax credit.
Salud Carbajal
Representative
CA-24
The Child Care Availability and Affordability Act aims to improve access to affordable child care by expanding employer-provided child care credits, increasing tax-free dependent care assistance, and creating a refundable household and dependent care tax credit. The employer provided child care credit is increased from 25% to 50% of qualified expenses, and the maximum credit amount is raised from $150,000 to $500,000. The amount of tax-free employer-provided dependent care assistance is increased from $5,000 to $7,500. A new tax credit is created for employment-related expenses paid for household and dependent care, with the applicable percentage starting at 50% and decreasing based on income, and the maximum creditable expenses are $5,000 for one qualifying individual and $8,000 for two or more.
Child Care Gets Cheaper: New Bill Expands Tax Breaks for Families and Businesses
The Child Care Availability and Affordability Act is all about making it easier for working folks to afford quality childcare. It tackles the issue from a few angles, aiming to put more money back in your pocket and boost support from employers. Here’s the breakdown:
Tax Breaks, Double-Dipped
This bill is like a double-scoop of tax relief. First, it significantly beefs up the tax credit for businesses that offer childcare. Previously, companies could write off 25% of their childcare expenses, up to a credit of $150,000. This bill cranks that up to 50%, and a max credit of $500,000 (SEC. 2). For smaller businesses with gross receipts under a certain threshold over a 5 year period, that credit will be 60% with a max of $600,000. Think of it like this: a local bakery owner who sets up a small play area for employees' kids could see a much bigger tax break, making it more feasible for them to offer that perk.
It also raises the amount of tax-free childcare assistance employees can receive from their company. It's going from $5,000 to $7,500 a year (SEC. 3). So, if your employer offers a dependent care flexible spending account (FSA), you can now stash away more pre-tax dollars to cover those daycare bills.
Credits Where They Count
The real game-changer for many families is the overhaul of the household and dependent care tax credit (SEC. 4). This is the credit you claim for the money you spend on childcare so you can work or look for work. The new bill, under section 36C, makes two huge changes:
- Bigger Credit: The credit percentage is now tied to your income. It starts at 50% for those earning up to $15,000, then gradually decreases. It drops another 1% for every $2,000 you make over $150,000. Plus, the maximum expenses you can claim are bumped up – $5,000 for one kid, $8,000 for two or more.
- Refundable: This is the key. Even if you don't owe any taxes, you can still get this credit as a refund. This is a major boost for lower-income families who might not have had a big enough tax bill to benefit from the old credit. For example, a single mom working as a cashier, making $25,000 a year, could see a significant chunk of her childcare costs covered by this refundable credit.
To claim the credit, you'll need the caregiver's name, address, and Taxpayer Identification Number (TIN), and the TIN of each qualifying child. There are clear rules about who qualifies as a dependent – basically, kids under 13 or anyone who can't care for themselves and lives with you for over half the year.
Real-World Ripple Effects
By making childcare more affordable, this bill could have some far-reaching effects. More parents might be able to return to the workforce, knowing they have support for childcare. Businesses, especially smaller ones, might be more likely to offer childcare benefits, helping them attract and retain employees. And, importantly, it puts more money back in the pockets of families who are juggling work and raising kids, which is pretty much everyone these days.