1 1 (July 24, 2020)

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COVID-19: Child Care Tax Provisions in H.R.


July 24, 2020
The Coronavirus Disease (COVID-19) pandemic has broadly impacted child care in the United States.
Surveys conducted inApril of both working families with young children and child care providers found
that the majority of child care providers had fully closed or reduced their enrollment. Data from the
Bureau of Labor Statistics suggest that the number of child care workers decreased by about one-third
between March andApril (see Table B-i) and about one-quarter between March and June, with the latter
number potentially reflecting the effects of states partially reopening. Parents and providers have
questions about if and when child care facilities will be able to reopen safely. The COVID-19 pandemic
has also amplified concerns about child care affordability.
As Congress continues to debate whether more needs to be done to address child care at the federal level,
the House Rules Committee recently reported a resolution that would allow the House to consider two
bills related to child care. One of those bills, the Child Care for Economic RecoveryAct (IR. 7327),
includes several tax provisions, as summarized in this Insight. A discussion of nontax child care
provisions in IR. 7327 can be found here.

Child and Dependent Care Tax Credit (CDCTC)

Under current law, eligible taxpayers may claim the child and dependent care tax credit (CDCTC) to help
offset their out-of-pocket work-related child and dependent care expenses.
The credit equals qualifying child and dependent care expenses-capped at $3,000 if the taxpayer has one
qualifying individual and up to $6,000 if they have two or more qualifying individuals -multiplied by a
credit rate. The credit rate varies based on adjusted gross income (AGI), with a maximum credit rate of
35% for taxpayers withAGI of $15,000 or less, gradually declining to 20% for taxpayers with AGI above
$43,000. These dollar amounts are not adjusted for inflation. Because the credit is nonrefundable, the
final credit amount is further limited by the taxpayer's income tax liability (e.g., taxpayers with no
income tax liability receive no credit).

IR. 7327 would:
    1. Make the credit refundable (so the credit would no longer be limited by income tax
                                                                Congressional Research Service

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