Bipartisan collaboration sustained in re-introduced child care bills

It’s April—time to think about showers, flowers, and also taxes.

Legislative bipartisan tax proposals in Congress are abuzz that could help support access to child care programs through making changes in the tax code. Here are the ideas that are pollinating in Washington.

Proposed tax credit legislation supporting child care costs

A bi-partisan, bi-cameral proposal, the Child Care Availability and Affordability Act would support child care expenses using the tax code. The bill is being led in the Senate by Senators Katie Britt (R-Ala.) and Tim Kaine (D-Va.) and in the House by Mike Lawler (R-N.Y.) and Salud Carbajal (D-Calif.). A number of other Republican and Democratic members of Congress are supporting the bill. The bill would touch on three major areas, all of which would have benefits to families of school-age children up to age 13:

Employer Tax Credits: Currently, employers can access a tax credit known as 45F which allows for them to claim up to 25% of expenses toward establishing, expanding, refurbishing and operating their own child care center or contracting with another child care center to provide services to their employees. They can also claim an additional 10% for child care referral services. The credit is capped at $150,000 per year for an employer.

Under the CCAA, employers be eligible for up to 50% of expenditures as a credit and the credit cap would be expanded to $500,000 per employer. Additionally, small business would be eligible for up to 60% and $600,000.

Dependent Care Assistance Programs: Dependent Care Assistance programs allow individual tax payers to exclude up to $5000 a year in child care expenses with any entity with a taxpayer identification number (TIN) for children under age 13 from their taxable income. A COVID relief package had expanded the credit in tax year 2022 to $10,500. Child care expenses can include before and afterschool programs and summer day camps.

Under CCAA, the excludable amount would increase to $7,500 per household.

Child and Dependent Care Tax Credit: Child and Dependent Care Tax Credit allows working families to deduct a percentage of their expenditures on child care (for children under age 13) based on their income levels up to a certain amount. A COVID relief package had increased the credit and made it fully refundable for a limited time, which has now expired.

Under CCAA, the credit would become refundable allowing more low-income families to access it. It would also increase the amount of the credit and allow it to be used better in combination with Dependent Care Assistance Programs.

In the proposal, the bill would increase the amount a family could be credited from their taxes to $2,500 for one child and $4,000 for two or more (by allowing 50% of a maximum expenditure on care of $5,000 and $8,000 to be eligible respectively).

The Affordable Child Care Act, a bipartisan House bill sponsored by Rep. Davids (D-Kansas) and Rep. Fitzpatrick (R-Penn.), reads like a variation of the act above, and would offer alternative amounts of modifications to each of the three major tax buckets. For the employer tax credit, it would maintain allowability for up to 25% of expenses but extend the amount businesses would be eligible for to $300,000. For Dependent Care Assistance Programs, it would double the limit parents could set aside untaxed from $5,000 to $10,000 each year. For the Child and Dependent Care Credit, it would double the current allowable expenditure amounts for one child from $3,000 to $6,000 and for two children or more from $6,000 to $12,000 (which at a 35% tax rate would provide tax credit savings of up to $2,100 and $4,200 respectively). It does not seem to make any portion of this refundable.

Proposed legislation enhancing supply

The proposed tax credits are an extremely helpful piece in advancing child care affordability especially as 52% of families say afterschool programs are too expensive. It’s encouraging to see both sides of the aisle working together and responding to what we know, Democrats and Republican voters alike all want more investments in child care and afterschool programs. Yet, across the U.S. 25 million youth don’t have access to afterschool programs, and 42% say it is because none are offered in their communities. Additionally, research shows youth outcomes correlate best with high levels of program quality including caring staff, engaging curriculum, and best practice for youth choice and voice.

Three additional bipartisan proposals this Congress- not related to tax policies- would aim to tackle some of that challenge and support increases in supply. Two of them are more heavily weighed toward opportunities in the early childhood space (0-5), whereas the third could potentially be more broadly accessible.

The Small Business Child Care Investment Act, co-sponsored by Jackie Rosen (D-Nevada) and Joni Ernst (R-Iowa) would expand the type of small business administration (SBA) loans that non-profit child care providers would be eligible for. The legislation mentions eligibility for providers primarily caring for children birth to school age but includes that providers may offer care for school age children.

The Child Care Workforce and Facilities Act (led in the Senate by Senator Klobuchar (D-Minn.) and Senator Sullivan (R-Alaska) and in the House by Rep. Harder D-CA and Rep. Fitzpatrick R-PA) asks states to define child care deserts looking at gaps in available slots for children up to age 5, and would offer competitive grants to states looking for a 50% cost share with the federal government to expand the child care workforce or receive facilities grants in those child care deserts.

The Child Care Workforce Act (led by the same by bi-partisan bi-cameral sponsors as the Child Care Availability and Affordability Act) would establish a pilot program for States/territories/tribes to apply for funds from the Secretary of Health and Human Services to enhance their child care workforce wages in ways that will support staff recruitment, retention and well-being and lead to increases in child care availability and quality. The pilot would ask states to detail the average wages of child care workers in their state, the number of families eligible for subsidy that do not receive them, and current workforce needs among other areas.

Continued support for building an infrastructure

Whether the tax policies or supplementary supports, each of these child care proposals would need to paired with other federal investments such as the Child Care and Development Block Grant (CCDBG) and the 21^st Century Community Learning Center (21^st CCLC) programs. Both CCDBG and 21^st CCLC, not only support affordability and access, but they provide through state and federal set asides an infrastructure of essential supports for technical assistance and professional development that support program quality and lead to more local innovation and long term outcomes for children and families.

So what’s next?

We look forward to these tax and other child care related bills continuing to move forward, gaining co-sponsors and becoming law.

While talk continues about reforming or eliminating some important tax credits for families in policies in the reconciliation process, we would prefer to see this tax support come through bipartisan proposals such as those above[1].

We will also continue the drumbeat on the main federal funding streams that support the infrastructure of afterschool as the annual budget and appropriations process continues.

Any way you look at it, this activity shows some good news: Congress is listening to the needs of families and communities. Your voices are having an impact and all this buzz could eventually gather the power to spring Congress into meaningful action.