FFYF Capsule Collection: Tax Policy and Child Care

Millions of American families today are struggling to find the affordable, reliable, quality child care they depend on to go to work. This has a devastating impact on our youngest learners, working families, and the health of local economies. 

It’s a complicated issue, but there are actions Congress can take that would make an impact. Strong funding is essential. Updating provisions of the federal tax code is also an important part of the solution, benefiting working parents and young children while supporting economic stability across the country.

In A Nutshell

The federal tax code has provisions designed to help offset the high cost of child care, including:  

• The Child and Dependent Care Tax Credit (CDCTC) is the only tax credit designed specifically to help parents offset the cost of child care. 
• The Dependent Care Assistance Program (DCAP) allows some working parents to set aside a small amount of their pre-tax paycheck to pay for child care expenses (including employer-sponsored child care contributions). 
• The Employer-Provided Child Care Credit (known as 45F) supports businesses who want to locate or provide child care for their workforce, while also increasing the number of child care slots available in their community.  

Unfortunately, these provisions are limited in their reach, which reduces their ability to help working parents access quality child care. Updating the federal tax code would simultaneously help more parents afford child care while supporting employer efforts to connect employees to child care options.

Support – Polling

• A 2023 poll from First Five Years Fund found that 78% of voters (including 73% of Republicans and 86% of Democrats) support increasing the tax credit specifically designed to help working parents offset the cost of child care.
•  And 82% of voters (including 78% of Republicans and 86% of Democrats) support providing tax incentives to businesses which provide or help their employees find and afford quality early childhood education programs. 

Support – Letters

• In September 2023, a group of 85 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.
• In January 2024, leaders of the Bipartisan Pre-K and Child Care Caucus — Reps. Suzanne Bonamici (D-OR),  Joaquin Castro (D-TX), and Ashley Hinson (R-IA) — sent a letter to the Ways and Means Committee urging them to modernize four existing child care credits – the Child and Dependent Care Tax Credit, Child Tax Credit, Dependent Care Assistance Program, and Employer Provided Child Care Tax Credit – to “provide immediate relief for working families and small businesses nationally.”
• In January 2024, a group of 20+ national organizations signed a joint statement applauding the bipartisan Tax Relief for American Families and Workers Act of 2024 and calling on Congress to also modernize other existing child care credits – Child and Dependent Care Tax Credit, the Dependent Care Assistance Program, and the Employer-Provided Child Care Tax Credit – to help ease the tremendous burden of finding and affording child care for working families while supporting economic stability around the country. 

Tools You Can Use

• For a basic overview, here are the First 5 Things To Know about how tax policy can play a role in strengthening child care.
• These one-pagers provide a deep dive into three primary provisions, including:
  • CDCTC
  • 45F
  • DCAP
• This side-by-side explainer compares the tax provisions and shows how they work together.
• And this document examines the differences between the Child Tax Credit (CTC) and the Child and Dependent Care Tax Credit (CDCTC) and why both are valuable for families with children.
• Advocates can also use this toolkit to share information and help build support for updating federal tax provisions to support child care. 
• This First Five Things about the Child Care Investment Act highlights how the tax provisions work together to support stronger child care options.

Active Legislation

FFYF is tracking relevant federal legislation, including:

• H.R. 4571, the Child Care Investment Act of 2023, introduced by Rep. Salud Carbajal (D-CA) and Rep. Lori Chavez-DeRemer (R-OR). This bill would enhance the three existing tax credits to address the cost and accessibility of child care for working parents.  
• H.R. 7360 – Promoting Affordable Childcare for Everyone (PACE) Act, introduced by Rep. Claudia Tenney (R-NY) and Rep. Brad Schneider (D-IL). This bill would modernize existing provisions in the U.S. tax code to help more families afford child care, including enhancing the Child and Dependent Care Tax Credit (CDCTC) and increasing the amount of pre-tax dollars families can set aside in Dependent Care Flexible Spending Accounts.
• The Child and Dependent Care Tax Credit Enhancement Act, introduced by Sens. Bob Casey (D-PA), Ron Wyden (D-OR), and Patty Murray (D-WA), which would update the Child and Dependent Care Tax Credit (CDCTC), increasing the maximum credit and auto-adjusting it to keep pace with inflation. It would also ensure low-income families can benefit from the tax credit by making it refundable.
• H.R. 5928 – Supporting Early-Childhood Educators’ Deductions (SEED) Act, introduced by Representatives Jimmy Panetta (CA-19), Brian Fitzpatrick (PA-01), Derek Kilmer (WA-06), and Tom Cole (OK-04). This bipartisan bill would expand teacher expenses tax deductions to include early childhood educators.
• S. 3424 SEED Act – introduced by Sen. Michael Bennet (D-CO), Sen. Susan Collins (R-ME). This bill expands the tax deduction for the expenses of elementary/secondary teachers to include early childhood teachers, so that early educators do not have to shoulder additional costs to provide children with the supplies they need.
• The “Right Start Child and Education Act,” introduced by Sens. Jeanne Shaheen (D-NH) and Angus King (I-ME), which would expand the employer-provided child care credit (45F), including an additional expansion available to small businesses, expand dependent care flexible spending accounts (DCAP); and create a new tax credit for child care professionals with relevant educational degrees.