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New: Bipartisan Bill to Strengthen Child Care Tax Incentives Introduced

News February 15, 2024

The New PACE Act: Today, U.S. House Reps. Claudia Tenney (R-NY) and Brad Schneider (D-IL) introduced the Promoting Affordable Childcare for Everyone (PACE) Act, a bill to enhance existing provisions in the tax code to help more families afford child care (here are the First 5 Things To Know about the bill.)

Why This Matters: Millions of working families with young children need quality child care, but the eye-watering cost of care today means many can’t afford it. And without it, many parents are forced to miss work or exit the workforce entirely, leaving families financially unstable, employers scrambling to fill jobs, and our littlest learners missing opportunities to learn and grow. 

What The Bill Does: Existing provisions in the federal tax code can play a powerful role in easing the tremendous financial burden of child care for working families, but they currently have a limited reach. The PACE Act would fine-tune these provisions help more parents afford child care, including:

  • Enhancing the Child and Dependent Care Tax Credit (CDCTC) by making the credit fully refundable so that it reaches more low- and middle-income working families; indexing the credit to inflation to ensure it matches rising costs of child care into the future, and raising the credit rate so that families will see more money back in their pockets. 
  • Expanding the Dependent Care Flexible Spending Accounts (FSAs) by increasing the amount of pre-tax dollars families can put into child care FSAs from $5,000 to $7,500.
  • More details below. 

First Five Years Fund (FFYF) Executive Director Sarah Rittling issued the following statement in response:

“The bipartisan Promoting Affordable Childcare for Everyone (PACE) Act is a crucial step to supporting families with young children while ensuring greater economic stability across the country. The Child and Dependent Care Tax Credit (CDCTC) is the only provision of the tax code specifically created to help working parents afford child care. Together with expanded Dependent Care Assistance Plans (DCAP), enhancing the CDCTC and ensuring its refundability will help ease the burden of the cost of child care for families who truly need it most. We are so grateful for the bipartisan leadership of Reps. Tenney and Schneider, for coming together to introduce the PACE Act and help America’s young children and their families find and afford the care they need.”

Additional Details: 

  • The CDCTC has remained relatively unchanged for the past two decades, even as the average price of child care has increased by 214% since 1990. 
  • The CDCTC is also currently not “fully refundable,” which means it can only reduce a tax bill to zero (and not provide the difference as a refund). 
  • The contribution limit for DCAP hasn’t changed since 1986, even as the cost of child care has skyrocketed. 
  • Last Fall, 85 national organizations, Chambers of Commerce and businesses sent a letter calling on members of Congress to make child care more affordable by updating the U.S. tax code.
  • And this year, as part of a joint statement supporting the Smith/Wyden tax bill, national organizations also called on lawmakers to modernize existing child care tax credits – like the CDCTC – to help make child care more affordable:
  • Leaders of the Bipartisan Pre-K and Child Care Caucus sent a letter to the Ways and Means Committee, urging their colleagues to update provisions of the United States tax code to strengthen child care. Reps. Suzanne Bonamici (D-OR),  Joaquin Castro (D-TX), and Ashley Hinson (R-IA) requested enhancements to four key tax provisions – the Child and Dependent Care Tax Credit, Child Tax Credit, Dependent Care Assistance Program, and Employer Provided Child Care Tax Credit. 

For a full rundown of what each tax provision does to make child care more affordable, click here.

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