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Dependent Care: Current Tax Benefits and Legislative Issues, January 17, 2008 1 (January 17, 2008)

handle is hein.tera/crstax0196 and id is 1 raw text is: Order Code RS21466 Updated January 17, 2008 ACRS Report for Congress Dependent Care: Current Tax Benefits and Legislative Issues Christine Scott Specialist in Social Policy Domestic Social Policy Division Summary In the 2000 census, for more than 60% of the households with children under age six, all parents in the household worked. For families with both parents working or a single-working-parent family, care for young children and individuals who are physically or mentally unable to care for themselves is critical to maintaining participation in the workforce. To assist these families, current law provides two tax benefits related to dependent care: the dependent care credit and the exclusion from income for employer-provided dependent care assistance programs. Both provisions are for employment-related expenses for the care of dependents under the age of 13, or dependents (or a spouse) who are physically or mentally incapable of caring for themselves. In the 1 10th Congress, legislation has been introduced that would increase the income level at which the credit rate is reduced, increase the maximum qualified expenses for the credit, or expand eligibility for the credit. This report will be updated as legislative activity warrants. Current Tax Benefits for Dependent Care There are two current law tax provisions for dependent care: the dependent care tax credit (DCTC) and the exclusion from income for employer-provided dependent care assistance programs (DCAP). Both provisions use the same definitions of qualified employment related expenses and qualifying dependents. The Working Families Tax Relief Act of 2004 (P.L. 108-311) changed the definition of a qualifying dependent beginning in tax year 2005 to conform with changes made to the personal exemption for a more uniform definition of a child. Qualified employment-related expenses are those expenses for household services and care of a qualifying dependent necessary for the taxpayer to be employed. For the purposes of qualified employment-related expenses, a qualifying dependent is a Congressional Research Service -f-! The Library of Congress Prepared for Members and Commitees of Congress

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