Skip to content
Tax Credits and Incentives

Bipartisan House Bill Aims to Expand Child Care Tax Credits

Tim Shaw  

· 5 minute read

Tim Shaw  

· 5 minute read

Recently proposed legislation that would expand employer and household child care-related tax credits, as well as bolster a federal aid program, has amassed support from bipartisan groups and nonprofits.

On July 17, House Representatives Salud Carbajal, Democrat of California, and Lori Chavez-DeRemer, Republican of Oregon, introduced the Child Care Investment Act (HR 4571), which was designed to take a three-pronged approach to reducing child care costs and improving access to assistance for working and middle-class families.

The bill increases the Code Sec. 45F employer-provided child care credit from 25% to 50% and raises the max credit amount from $150,000 to $500,000. Small businesses would be eligible for a 60% rate with a max amount of $600,000. The credit is calculated based on qualifying child care expenditures plus 10% of qualified child care resource and referral service expenditures spent by employers.

According to a Congressional Research Service report from April that pulled data from the Bureau of Labor Statistics, “about 11% of civilian workers had access to employer-provided child care in 2021” and “lower-wage workers were less likely to have access than higher-wage workers.” The credit under current law presents several policy issues, the report found in citing issues raised by businesses to the Government Accountability Office, such as the credit’s inability to “sufficiently offset” the “substantial start-up and long-term costs to providing child care.”

Further, the CRS reported that businesses have struggled to predict if employees will enroll enough children to make a child care facility worthwhile, and that the feasibility of such facilities are bogged down by “regulatory and legal issues.” Finally, it was concluded that employers overall are unaware that the credit exists. Per the bill’s one-pager, these issues would be addressed by allowing businesses to jointly own and operate a child care facility using the credit and by making accredited in-home child care service expenses eligible.

The next section of the proposal increases the maximum exclusion under the Dependent Care Assistance Program to $10,000 plus an additional $2,000 per eligible dependent. Third, the bill makes several modifications to the child and dependent care tax credit, including making the benefit refundable and upping the credit rates across income ranges. For those with adjusted gross income under $15,000, the credit rate would be 50% (currently 35%).

“Skyrocketing costs have left affordable child care out of reach for too many families,” said Chavez-DeRemer in a press release. “Unfortunately, this problem often falls on women, who then must decide between staying at home and pursuing a career or education that they are passionate about. It has a far-reaching effect on families, local businesses, and our economy, which is why investing in child care is also an investment in the future growth and success of our communities.”

The Child Care Investment Act is endorsed by the Bipartisan Policy Center, the First Five Years Fund, Save the Children, and the Early Care and Education Consortium. On August 15, Carbajal conducted a joint press conference alongside local California groups, including the Santa Barbara South Coast Chamber of Commerce, the Santa Maria Chamber of Commerce, United Way Santa Barbara, First 5 Santa Barbara, and Cottage Health, a regional hospital system.

“When I sit down with Central Coast working families or small business owners to talk about what they’re worried about when it comes to making ends meet, there is always one consistent item: the cost and availability of child care,” said Carbajal on Monday. “Families can’t find the care they need, or can’t afford it. Businesses can’t hire who they want because there’s not enough care options. And the lack of affordable child care is holding our middle class families and local economies back.”


Get all the latest tax, accounting, audit, and corporate finance news with Checkpoint Edge. Sign up for a free 7-day trial today.

More answers