New Brief Offers Recommendations to Strengthen CDCTC, DCAP, 45F and More

It’s well established that parents of young children are struggling, with access to affordable, quality child care being one of the major sources of stress. Last month, the Children’s Equity Project released a brief with multiple recommendations for how the U.S. tax code can be updated to better meet the needs of families. In Centering Families in the US Tax Code, authors Mario Cardona, Linda Smith, and Shantel Meek explain how different tax provisions help families pay for the costs of raising children, including child care. 

With provisions included in the Tax Cuts and Jobs Act of 2017 expiring at the end of this year, this Congress has an opportunity to update the tax code to address the current shortcomings of the various provisions to more effectively reach families in need. 

The brief includes the following recommendations for Congress to implement a “family first tax policy” agenda: 

• Establish the Child Tax Credit (CTC) Plus: 
  • Create a higher benefit for parents with children under six so that they can receive $6,000 through this tax credit
  • Ensure that the credit is fully refundable, advanceable, and available monthly 
  • Index the credit to inflation
    
• Optimize Our Existing Credits & Programs Dedicated to Child Care
  • Make the Child and Dependent Care Tax Credit (CDCTC) refundable, increase the capped amounts for qualifying expenses, and update the rates for applying the credit toward higher levels of income
  • Eliminate the preclusion for spouses, or parents of the child, to serve as a qualifying care provider for the CDCTC
  • Consider some level of income targeting for the dependent care assistance program (DCAP)
    
• Encourage More Businesses to Help with the Costs of Care
  • Modify the Employer-Provided Child Care Credit (45F) by expanding the credit amount; expanding the definition of services eligible, including home-based care; extending the credit to employers with no tax liability, including nonprofits; allowing multiple employers to jointly contract to construct or renovate a facility, or engage a child care provider to deliver services to their employees; and making the credit fully refundable
    
• Incent Investments in Early Childhood & Support Early Educators
  • Establish an early childhood professional loan assistance program for degreed teachers who are employed full-time in programs that serve children eligible for federally-funded early learning and care programs
  • Expand the definition of those eligible for the out-of-pocket deduction extended to educators to include those working in early childhood education programs
  • Create a tax incentive to invest in socially conscious investments in opportunity zones, such as child care facilities

The authors also recommend eliminating any harmful interactive effects across these programs, such as decoupling the CDCTC and DCAP.

While the tax code alone cannot solve the structural problems with our nation’s child care system, it can play an important role in helping parents with young children offset high costs they face during the early years of parenthood. To learn more about these tax provisions, check out FFYF’s latest resources.