The US House of Representatives elected with overwhelming majority Jan. 31 to support low-income families by expanding the child tax credit. The bill now awaits Senate approval. However, some organizations also point to a separate tax credit for child care and dependent care, which they say does not provide sufficient support to families and providers in the face of rising costs.
The National Association of Tax Professionals supports expanding the child and dependent care tax credit, said Tom O’Saben, the organization’s director of tax content and government relations. Currently, the tax credit has not kept pace with inflation, he said, and Congress is not currently discussing expanding it in parallel with the child tax credit.
It’s straightforward to confuse the two tax credits, but advocacy groups like the First Five Years Fund say it’s essential to know the difference and understand why both are needed to lend a hand families. The child tax credit is designed to lend a hand families with the costs of raising a child and is often used to lend a hand with everyday expenses.
The child and care tax allowance is intended to offset the costs of child care for working families. Only the costs of formal child or care are taken into account, not informal care arrangements with family members or other persons.
“More and more people are debating whether it’s worth it for them to work outside the home if they have to pay $25,000 for child care,” says O’Saben. Some of his clients, whom he serves as a tax consultant, pay up to $35,000 a year for two children.
For now, he simply recommends that these clients take advantage of the opportunity to open pre-tax malleable spending accounts through their employer (if they have them), but these are capped at $5,000 per year and can therefore only cover a fraction of what many families need.
A Bank of America report in October showed that average child care costs per household have increased 30% since 2019, with families earning between $100,000 and $250,000 seeing the largest enhance. January 2023 A U.S. Department of Labor report called monthly child care prices across the country “unsustainable” and said counties with higher child care prices had lower maternal employment rates.
According to the Bureau of Labor Statistics, child care costs have increased 214 percent since 1990, while average family income has increased 143 percent.
Expansion bill with bipartisan authors was not heard in Congress
Congress temporarily increased the child care tax credit in 2021 through the American Rescue Plan Act. It was the first time the credit was adjusted since 2001, during former President George W. Bush’s administration. Instead of $3,000 for one child and $6,000 for two or more children, the credit for qualified expenses increased to $8,000 and $16,000, respectively. The amount of the credit varies depending on the taxpayer’s adjusted gross income.
During this period, the credit was also refundable, so that a taxpayer could full credit even if it exceeds the amount of taxes owed to the federal government, and receive the remainder as a refund.
“It got closer to reality, but it took a year,” O’Saben said. “If I were to bet at the end of 2021, I would have bet that Congress would have extended that provision because it was so family-friendly.”
However, Congress was unable to agree on an extension of the child care tax credit or the general child tax credit. Now only one of the two credits is up for expansion, if approved by the Senate.
There is a bill that introduced in Congress to address the child care credit expansion, sponsored by Democratic Rep. Salud Carbajal of California and Republican Rep. Lori Chavez-DeRemer of Oregon. It was introduced in July but has not yet been heard. A group of 85 child care providers and employers and business leaders from states across the country have also sent a letter to members of the Senate Finance Committee and the House Budget Committee who expressed support for expanding the child care tax credit. The states included Kansas, Kentucky, Idaho, Texas, Utah, and Ohio.
State governments and municipalities must also intervene, demands interest group
Michael Cassidy, director of policy reform and advocacy at the Annie E. Casey Foundation, told States Newsroom that while both loans are essential, it could take time to achieve both goals and will require more than just federal investment.
Some states have moved to maintain the same level of support that the federal government has provided during the pandemic, such as Minnesota, where Democratic Gov. Tim Walz approved a $1.3 billion package to support child care facilities with wage increases and allow more families to qualify for financial assistance with costs. But in other states, like Texas$2.3 billion in federal aid remained unused, and Missouri And Louisianathe amounts provided by federal aid did not contribute significantly to supporting providers and families.
“The pandemic and our recovery from it have revealed the enormous challenges we face in this country with child care. I think everyone has seen that,” Cassidy said. “It’s a policy thicket that has plagued this country for decades … so moving from this faltering child care system to one that works is going to require some investment at the state, local and national levels.”
