Tax provisions are a critical tool for helping families offset the high cost of child care while also supporting employer efforts to connect employees with affordable child care options. Expanding federal tax provisions, along with federal investments in early learning and care programs, would improve access to quality, affordable child care for working families while also helping to support and retain a stable workforce. Bolstering tax provisions aimed at offsetting child care costs has long had bipartisan support from members of Congress.
When used in conjunction with one another, there are multiple tax provisions that can help address the cost and accessibility of child care. Below are more details on the unique role each provision plays in supporting working parents, and how together they can support our nation’s youngest learners, their parents, businesses, and the economy at large.
The Child and Dependent Care Tax Credit (CDCTC)
- The Child and Dependent Care Tax Credit (CDCTC) is the only tax credit specifically created to help working parents offset the high cost of care and keep more of what they earn. Parents can claim a percentage of expenses to help cover the cost of care for children under the age of 13 or adult dependents. For example, a maximum credit of $2,100 per year (35% of $6,000 in expenses) is available to families with two or more children.
- Learn about the First Five Things to Know About the CDCTC here.
Employer-Provided Child Care Credit (45F)
The Employer-Provided Child Care Credit (45F) encourages businesses to help make child care more accessible for their employees, by offering companies a tax credit to help cover some of the associated costs of child care.
- This includes costs associated with providing a qualified child care facility (including purchasing, building, or updating property that can be used as a child care facility, and for the operating costs, including supporting child care professionals through training, scholarships, and wages), contracting with a qualified child care provider, and contracting for resource and referral services.
Dependent Care Assistance Plan (DCAP)
The dependent care assistance plan (DCAP) is an employee benefit plan – often in the form of a flexible spending account – that helps employees pay for the care of a qualifying dependent.
- The program allows working parents to set aside up to $5,000 per year from their gross earnings free from tax liability to pay for dependent care. Only those with a sponsoring employer are able to access DCAP benefits. Employers can choose to contribute to employees’ DCAP as well, but the combined employer and employee contributions cannot exceed $5,000.
Often confused for the CDCTC, the Child Tax Credit (CTC) fills a different set of needs for parents. The CTC can be used to offset any costs associated with raising a child; according to recent data, the most common ways parents use the CTC is to pay for basic needs including food, utilities, rent, and clothing.
The CDCTC and DCAP help parents afford child care and 45F helps businesses share the expense with employees. Together, they are essential in supporting parents in offsetting the costs of going to work and providing for their families. It is critical that Congress expand these tax provisions that support businesses and parents simultaneously.
FFYF, alongside more than 85 child care experts, providers, business leaders, and employers recently signed a letter calling on the Senate Finance and the House Ways and Means Committees to expand and update provisions of the federal tax code to help working families and bolster local economies. Learn more about our recommendations for Congress here.
In July 2023, Rep. Salud Carbajal (D-CA) and Rep. Lori Chavez-DeRemer (R-OR) introduced H.R. 4571, the Child Care Investment Act of 2023, which would enhance the CDCTC, 45F, and the DCAP to address the cost and accessibility of child care for working parents. Learn more about the bill here.