Reconciliation Bill Doesn’t Go Far Enough to Tackle ‘Care Crisis,’ Say Groups

Child care providers and advocates are celebrating a provision in the One Big Beautiful Bill Act (OBBBA, H.R. 1) that would boost a tax credit to help small employers invest in child care — but they are hoping the Senate will go even farther to assist working families.

Insufficient access to child care is costly, said the Council for a Strong America in a 2023 report. The group put the annual cost at $122 billion, between “productivity problems,” foregone earnings and job search expenses, and lost tax revenue.

And the House-passed OBBBA takes a step to help by revising the Employer-Provided Child Care Tax Credit under Code Sec. 45F. Under current law, employers that provide child care for their employees can claim a credit equal to 25% of their child care expenditures — defined to include child care facility construction and operation or costs to contract with a facility — and 10% of related referral costs. The credit is capped at $150,000 per year.

The House approved a provision that would increase that credit to 40% of child care expenditures, capped at $500,000 annually. Small businesses could claim an even larger credit — 50% of expenditures, with a $600,000 annual cap. According to the Joint Committee on Taxation’s analysis, “[t]he small business gross receipts threshold for 2025 is $31 million.”

John Bork, president and chief operating officer of Learning Care Group, told Checkpoint “the updates proposed for Section 45F finally give businesses a clear financial reason to make that investment” in child care. Learning Care Group claims to be the second-largest for-profit early education child care provider in the U.S., and it operates more than 1,100 schools nationwide, said Bork. “We see every day how a single classroom seat can decide whether a hospital ward is fully staffed or a production line keeps moving,” he explained.

CDCTC and DCAP reforms lacking in House bill.

The House-passed version of OBBBA, however, just boosts one of three “tax tools” Bork said work together to lower the cost of child care. The Child and Dependent Care Tax Credit (CDCTC) and Dependent Care Assistance Program (DCAP) are also “overdue for an overhaul,” he contends. “When combined, this trio makes high-quality care more affordable and keeps talent in the workforce.”

DCAP, under Code Sec. 129, allows employees to, via an employer sponsor, exclude from their gross income the lesser of $5,000 ($2,500 for marrieds filing separately), the employee’s earned income, or the income of the employee’s spouse.

And individual taxpayers with dependents can also claim the CDCTC under Code Sec. 21 for certain care expenses that enabled them to be gainfully employed. For years other than 2021, taxpayers with an adjusted gross income of $15,000 or less could claim a credit for 35% of qualifying expenses. The credit phases down by income level — and taxpayers with AGI over $43,000 may claim up to 20% of expenses.

Bork explained that the CDCTC “is the only federal tax benefit that puts money straight back in parents’ pockets for child-care costs.” But that credit “has not been updated since 2001, and its average value has fallen to roughly $600 a year even as tuition keeps rising,” he added.

Bork noted that the CDCTC and Section 45F “have been frozen for 24 years,” and “DCAP has not changed since 1986.” From his stance as a child care provider, updates to all three — as well as improvements to the Child Tax Credit — “would cut costs for families and help employers maintain the staff they need.”

Curran McSwigan, a deputy director at Third Way, told Checkpoint that OBBBA’s changes to the Employer-Provided Child Care Tax Credit, including “boosting 45F’s maximum credit value, tying it to inflation, and better targeting it towards small businesses, will certainly help more families access and afford child care.”

But McSwigan agreed with Bork that “these enhancements reflect just a sliver of the support working families actually need.” She added that “the bill’s lack of modifications to the CDCTC means the credit will continue to prevent the lowest-income families from reaping its benefits, and the credit’s value further erodes for working families every year due to inflation.”

Sarah Rittling, executive director of First Five Years Fund, echoed those sentiments in a statement after the House Ways and Means Committee — which took the lead on the OBBBA tax provisions — released its portion of the bill’s text. “While we applaud the Committee for improving 45F,” said Rittling, “there remains a significant need to strengthen the tax credit that specifically and directly helps working families offset the cost of child care, the Child and Dependent Care Tax Credit.”

The bipartisan National Conference of State Legislatures, too, is calling for updates not just to Section 45F, but also the CDCTC as well as the DCAP and Child Tax Credit. In a May 5 letter to House and Senate taxwriting committee leadership, NCSL offered several suggestions not yet taken up in OBBBA.

Beyond updating the credit amounts, NCSL is calling for a fully refundable CDCTC. It also suggests separating DCAP from the CDCTC “so that parents who contribute to a DCAP can receive up to the maximum CDCTC for the amount they spend on child care above their DCAP contribution.”

Prospects for Senate changes.

Some tax policy specialists aren’t predicting large-scale changes to OBBBA in the Senate, owing to the slim majority by which the bill passed the House. But bipartisan legislation would go much farther to reform child care tax provisions, and there’s a chance changes could be incorporated into the Senate OBBBA.

Last year, Senators Tim Kaine (D-VA) and Katie Britt (R-AL) introduced the Child Care Availability and Affordability Act — and that bill was reintroduced this session in both chambers (S. 847/H.R. 1827).

The bipartisan legislation would boost the Section 45F credit much like the House OBBBA. But it also would enhance the CDCTC by increasing the maximum percentage of employment-related expenses allowed as a credit from 35% to 50% and making the credit partially refundable.

In addition, it would reform the DCAP by increasing the cap from $5,000 to $7,500 and decoupling it from the CDCTC “to allow eligible families to benefit from both when their child care expenses exceed the DCAP threshold.”

Aaron Loewenberg, a senior policy analyst at New America, lamented that the House-passed OBBBA did not go far enough to “help parents with the high cost of child care.” But he is hopeful as the bill heads to the Senate “where a bipartisan group of senators has proposed legislation that would make the CDCTC more generous and partially refundable so that lower-income families could also benefit from the increased credit.”

McSwigan, too, is hoping for a better output from the Senate. “As the Senate continues to work through amendments and bill text, they should find ways to make improvements to prioritize working- and middle-class families,” she told Checkpoint. But McSwigan added the caveat that any changes in the Senate should be done “in a way that is fiscally sound” so improvements “do not outweigh the burden on working families of trillions more in debt.”

For more on the Employer-Provided Child Care Tax Credit, see Checkpoint’s Federal Tax Coordinator ¶ L-17870 et seq. For more on the Child and Dependent Care Tax Credit, see ¶ A-4300 et seq. For more on the Dependent Care Assistance Program, see ¶ H-1400 et seq.