Childcare Bill Axes Dependent Care Tax Credit, Shifts $14 Billion in Subsidies to Parent Vouchers

The “Respect Parents’ Childcare Choices Act” is a major overhaul of how the federal government funds subsidized childcare, putting a huge emphasis on parental choice while making a significant change to the tax code. Starting in 2026, this bill authorizes a massive $14 billion annually through 2031 for the Child Care and Development Block Grant (CCDBG) program, which helps low-income families pay for care. The big catch? It completely eliminates the existing federal tax credit for dependent care expenses, which many middle-class families use.

The $14 Billion Voucher Mandate

Under this proposal, states must deliver almost all subsidized childcare services—90 percent of the direct service funds, up from 70 percent—using “child care certificates,” essentially vouchers given directly to parents. This is a massive shift away from the current system where states often use grants or contracts to fund specific centers. The idea is to give parents maximum flexibility; if you qualify for assistance, you get the certificate and choose the provider, whether that’s a traditional center, an in-home provider, or even a religious facility. Crucially, the bill explicitly states that certificates can be used at religious providers, even for activities like worship or instruction, as long as it’s part of the care package.

Clearing the Path for Grandma and Grandpa

One of the most practical changes in this bill is the boost for relative caregivers—think grandparents, aunts, or adult siblings. The bill requires states to review and eliminate overly burdensome licensing rules for these family members that aren’t strictly necessary for safety. This is a big deal because many families rely on relatives, but current rules often make it hard for them to get paid through the subsidy program. To sweeten the deal, relative caregivers must now be paid at least 75 percent of the rate a standard family child care provider receives in the same area. This formally recognizes and financially supports those informal family care arrangements.

The Marriage Penalty Fix and the New Income Line

The bill addresses a common frustration: the “marriage penalty.” If a parent receiving assistance gets married and the combined household income suddenly exceeds the eligibility limit, the state can’t cut off aid immediately. Assistance must continue for at least six months after the marriage, giving the family time to adjust. However, the bill also updates the income limits for married parents to qualify for assistance, setting them at 85 percent of the State median income (or 70 percent if one spouse is the relative caregiver). For busy, working couples hovering near the state median income, this new line will be critical to watch, as it defines who gets access to the new certificates.

The Cost: Bye-Bye Dependent Care Tax Credit

Here’s the part that will hit many working families who don’t qualify for the income-tested subsidies: Section 3 of this bill completely repeals the federal tax credit for household and dependent care services (Section 21 of the Internal Revenue Code). This credit has long been used by middle-income families to recoup a portion of their work-related childcare costs at tax time. If you’re a dual-income family making too much money for the new CCDBG certificates but still paying thousands in childcare, you will lose this credit entirely. This move effectively shifts federal support away from a broad tax benefit and focuses it exclusively on the income-tested subsidy program, meaning fewer families overall will receive federal help for childcare expenses.

New Pilots to Fight Fraud

To make sure this huge investment is working, the bill sets aside two separate $50 million pilot programs. One is focused entirely on fraud prevention, helping states verify eligibility, stop payments to ineligible children, and confirm the relationship between relative caregivers and the kids they watch. This is a smart move, especially with the increased use of direct certificates, ensuring the money goes where it’s supposed to and reducing the potential for misuse in the new system.