Problem
The child and dependent care credit is currently not refundable, meaning families that owe no income taxes get no benefits. This poses a challenge for low-income families who need childcare and also creates a barrier to employment. Not receiving funds from the child and dependent care credit also limits such families’ choice, as the subsidies they receive from the Child Care Development Fund, if they can access childcare subsidies at all, generally restrict them to day care centers.
Solution
Policymakers should make the child and dependent care credit refundable so families without income tax liability are eligible. It should provide a maximum of $5,000 per child rather than $3,000 for one child and $6,000 for two or more children. (Note: The One Big Beautiful Bill Act incorporated this proposal’s recommendation to cover 50 percent of qualifying costs instead of 35 percent.) Using the tax system to distribute resources to help cover childcare costs allows families the maximum level of choice and flexibility to find the childcare provider that meets their needs.
Date of Proposal : February 13, 2017
Angela Rachidi, “Child Care Assistance in the United States,” in A Safety Net That Works: Improving Federal Programs for Low-Income Americans, ed. Robert Doar (American Enterprise Institute, 2017), Read more.