FFYF Capsule Collection: Tax Policy and Child Care

Millions of American families today are struggling to find the affordable, reliable, quality child care they depend on to go to work. This has a devastating impact on our youngest learners, working families, and the health of local economies. 

It’s a complicated issue, but there are actions Congress can take that would make an impact. Strong funding is essential. Updating provisions of the federal tax code is also an important part of the solution, benefiting working parents and young children while supporting economic stability across the country.

In A Nutshell

The federal tax code has provisions designed to help offset the high cost of child care, including:  

• The Child and Dependent Care Tax Credit (CDCTC) is the only tax credit designed specifically to help parents offset the cost of child care. 
• The Dependent Care Assistance Program (DCAP) allows some working parents to set aside a small amount of their pre-tax paycheck to pay for child care expenses (including employer-sponsored child care contributions). 
• The Employer-Provided Child Care Credit (known as 45F) supports businesses who want to locate or provide child care for their workforce, while also increasing the number of child care slots available in their community.  

Unfortunately, these provisions are limited in their reach, which reduces their ability to help working parents access quality child care. Updating the federal tax code would simultaneously help more parents afford child care while supporting employer efforts to connect employees to child care options.

Support – Polling

• A 2023 poll from First Five Years Fund found that 78% of voters (including 73% of Republicans and 86% of Democrats) support increasing the tax credit specifically designed to help working parents offset the cost of child care.
•  And 82% of voters (including 78% of Republicans and 86% of Democrats) support providing tax incentives to businesses which provide or help their employees find and afford quality early childhood education programs. 

Support – Letters

• In September 2023, a group of 85 organizations, Chambers of Commerce and businesses sent a letter calling on members of Congress to make child care more affordable by updating the U.S. tax code.
• In January 2024, leaders of the Bipartisan Pre-K and Child Care Caucus — Reps. Suzanne Bonamici (D-OR),  Joaquin Castro (D-TX), and Ashley Hinson (R-IA) — sent a letter to the Ways and Means Committee urging them to modernize four existing child care credits – the Child and Dependent Care Tax Credit, Child Tax Credit, Dependent Care Assistance Program, and Employer Provided Child Care Tax Credit – to “provide immediate relief for working families and small businesses nationally.”
• In January 2024, a group of 20+ national organizations signed a joint statement applauding the bipartisan Tax Relief for American Families and Workers Act of 2024 and calling on Congress to also modernize other existing child care credits – Child and Dependent Care Tax Credit, the Dependent Care Assistance Program, and the Employer-Provided Child Care Tax Credit – to help ease the tremendous burden of finding and affording child care for working families while supporting economic stability around the country.
• In August 2024, over 150 national, state, and local organizations, Chambers of Commerce and businesses sent a letter calling on members of Congress to make child care more affordable for working families by updating provisions in the U.S. tax code. 

Tools You Can Use

• For a basic overview, here are the First 5 Things To Know about how tax policy can play a role in strengthening child care.
• These one-pagers provide a deep dive into three primary provisions, including:
  • CDCTC
  • 45F
  • DCAP
• This side-by-side explainer compares the tax provisions and shows how they work together.
• And this document examines the differences between the Child Tax Credit (CTC) and the Child and Dependent Care Tax Credit (CDCTC) and why both are valuable for families with children.
• Advocates can also use this toolkit to share information and help build support for updating federal tax provisions to support child care. 
• This First Five Things about the Child Care Investment Act highlights how the tax provisions work together to support stronger child care options.

Active Legislation

FFYF is tracking relevant federal legislation, including:

House of Representatives

• The Child and Dependent Care Tax Credit Enhancement Act – H.R. 7252 
  • Introduced by: Rep. Danny Davis (D-IL)
  • This bill would update the CDCTC, doubling the maximum credit and auto-adjusting the rate to keep pace with inflation. It would also ensure low-income families can fully benefit from the tax credit by making it refundable.
• The Child Care Investment Act of 2023 – H.R. 4571 
  • Introduced by: Rep. Salud Carbajal (D-CA) and Rep. Lori Chavez De-Remer (R-OR)
  • This bill would enhance the three existing child care tax credits – CDCTC, DCAP and 45F – to address the cost and accessibility of child care for working parents.  
• The Promoting Affordable Child Care for Everyone (PACE) Act – H.R. 7360
  • Introduced by Rep. Claudia Tenney (R-NY) and Rep. Brad Schneider (D-IL)
  • This bill would modernize two existing child care tax benefits – the CDCTC and DCAP – to keep both incentives effective and provide more financial support for working parents who need child care.
• The Affordable Childcare Act – H.R. 8635
  • Introduced by Rep. Marc Molinaro (R-NY) and Rep. Sharice Davids (D-KS)
  • This bill doubles three different tax credits, the CDCTC, DCAP, and 45F, helping working families afford child care as costs rise while encouraging employers to support their workers’ child care needs.
• The Child Care for American Families Act – H.R. 8540
  • Introduced by Rep. David Kustoff (R-TN) and Rep. Brad Schneider (D-IL)
  • This bill would increase the amount of the tax credit (45F) that businesses can claim for investing in child care services for their employees with an emphasis on small businesses and those located in low-income and rural areas.

Senate

• Child Care Availability and Affordability Act – S. 4874
  • Introduced by: Sen. Katie Britt (R-AL), Sen. Tim Kaine (D-VA)
  • This bill would enhance the three existing child care tax credits – CDCTC, DCAP and 45F – to address the cost and accessibility of child care for working parents.  It is paired with the Child Care Workforce Act, which  would address early educator shortages.
• The Child and Dependent Care Tax Credit Enhancement Act – S.3657
  • Introduced by: Sen. Robert Casey (D-PA), Sen. Ron Wyden (D-OR), Sen. Patty Murray (D-WA) 
  • This bill would update the CDCTC, increasing the maximum credit and auto-adjusting it to keep pace with inflation. It would also ensure low-income families can fully benefit from the tax credit by making it refundable.
• Child Care for American Families Act – S. 5254
  • Introduced by: Sen. Michael Bennet (D-CO), Sen. Marsha Blackburn (R-TN)
  • This bill would increase the amount of the tax credit (45F) that businesses can claim for investing in child care services for their employees with an emphasis on small businesses and those located in low-income and rural areas.
• Right Start Child Care and Education Act of 2024 – S. 3787 
  • Introduced by: Sen. Jeanne Shaheen (D-NH) and Sen. Angus King (I-ME)
  • This bill would expand the employer-provided child care credit (45F), including an additional expansion available to small businesses and double the amount of pre-tax income workers can set aside for child care expenses in their dependent care flexible spending accounts (DCAP).