Big Changes Proposed for Child Care: More Grant Funding via Certificates, But Say Goodbye to the Dependent Care Tax Credit

This legislation, the "Respect Parents’ Childcare Choices Act," significantly reshapes federal child care support. It authorizes $14 billion per year for the Child Care and Development Block Grant (CCDBG) from fiscal year 2026 through 2031. The core change? It mandates that states must offer parents child care certificates for payments and requires that 90% of direct child care services funded by the grant be provided through these certificates. The bill also eliminates the current tax credit for household and dependent care expenses.

More Cash, More Choice... Via Certificates

The bill pumps significant new money into the CCDBG but directs how states must spend a large chunk of it. That $14 billion annual authorization aims to increase child care assistance. However, the requirement that 90% of direct services flow through child care certificates (defined as funds parents can use with an eligible provider) marks a major shift. Think of it like a voucher system becoming the primary way assistance is delivered.

There's a strong focus on relative caregivers – grandparents, aunts, uncles, or adult siblings watching the kids. States must notify parents they can use certificates to pay relatives and are directed to reduce burdensome regulations on these caregivers. Payment rates for relatives must be at least 75% of what licensed family child care providers receive (Sec 2). Additionally, if an unmarried parent receiving aid gets married, they won't immediately lose assistance if their new combined income pushes them over the limit; aid continues for at least six months post-marriage.

The Fine Print: Religious Providers and Quality Caps

The act includes specific protections for religious child care providers, ensuring they aren't subject to requirements that would interfere with their religious character and allowing them to receive certificate payments without additional state/federal burdens (Sec 2). It explicitly replaces the term "sectarian" with "religious" throughout the relevant sections.

Funding dedicated to improving child care quality is capped: states can reserve only 9% of their total grant for general quality improvements, plus an additional 3% specifically for infant and toddler care quality (Sec 2). Eligibility for assistance also gets defined, including a family asset limit of $1,000,000. Two pilot programs are established, each authorized at $50 million: one to help states prevent fraud and verify relative caregivers, and another to promote care provided by relatives.

Tax Time Shake-Up: Kiss the Dependent Care Credit Goodbye

Perhaps the most significant change for many working families outside the grant system is the complete repeal of Section 21 of the Internal Revenue Code (Sec 3). This is the well-known Credit for Child and Dependent Care Expenses – the tax break many parents use to offset costs for daycare, after-school programs, or summer camps needed so they can work or look for work. Under this bill, that credit is eliminated for taxable years beginning after the act is passed. While the bill increases direct assistance through CCDBG certificates, it removes this broad-based tax relief mechanism relied upon by millions. Several other tax code sections (like Section 129 concerning employer-provided dependent care assistance) are updated to reflect this repeal, ensuring consistency but ultimately removing the standalone tax credit.