HR1827-119

What This Bill Does

The Child Care Availability and Affordability Act uses two tax changes to lower child care costs and encourage employer supply. First, it amends section 45F so the employer-provided child care credit covers 50 percent of qualified expenses instead of 25 percent and raises the cap from $150,000 to $500,000. A taxpayer meeting a five-year gross receipts small-business test receives a 60 percent credit and a $600,000 cap. A facility can qualify even if jointly owned or operated with other persons. Second, it repeals the old section 21 child and dependent care credit and creates refundable section 36C. The new credit starts at 50 percent of employment-related expenses, phases down to at least 35 percent as adjusted gross income exceeds $15,000, then phases down further above $150,000. Creditable expenses are capped at $5,000 for one qualifying individual and $8,000 for two or more. Qualifying individuals include children under 13, dependents incapable of self-care, and spouses incapable of self-care; dependent care centers must comply with state and local law; married couples generally must file jointly; and taxpayers must provide provider and qualifying individual identification information.

Who Benefits and How

Working parents benefit because the household and dependent care credit becomes refundable and uses higher expense caps. Families with children under 13 or dependents needing care benefit from tax support tied to employment-related care expenses. Small business employers benefit from a 60 percent employer child care credit and a $600,000 cap. Employers building shared child care facilities benefit because jointly owned or operated facilities can qualify. Child care centers benefit if employer credits and refundable family credits increase demand for compliant care.

Who Bears the Burden and How

The Treasury Department must issue regulations and guidance for refundable section 36C and expanded section 45F rules. Internal Revenue Service staff must administer refundability, income phase-downs, TIN reporting, and employer facility credits. Federal taxpayers bear revenue loss and refund outlays from larger credits. Dependent care providers must supply identifying information so taxpayers can claim the credit. High-income households lose credit value as the section 36C percentage phases down above income thresholds.

Key Provisions

• Expands the employer-provided child care credit to 50 percent and $500,000.
• Provides a 60 percent credit and $600,000 cap for qualifying small businesses.
• Allows jointly owned or operated employer child care facilities to qualify.
• Creates a refundable household and dependent care credit with $5,000 and $8,000 expense caps.
• Requires provider and qualifying individual identification information and Treasury guidance.