![]() Lastly, those with the lowest incomes receive, on average, the lowest credits: for those with incomes under $15,000, the average credit amount is $121, while for those with incomes over $25,000, the average credit amount is between $500 and $600. Second, on average, just 13% of taxpayers with children claim the credit, but the participation rate is even lower for those with lower incomes: fewer than 1% of all taxpayers with incomes under $15,000 claim the CDCTC, compared to almost 30% of those with incomes between $100,000 – $200,000. In 2015, only 4% of aggregate CDCTC dollars went to families with incomes under $25,000, while 55% went to families making over $75,000. As such, most CDCTC benefits accrue to middle- and high-income families rather than the low-income families who most need assistance affording child care. Therefore, taxpayers with little or no income tax liability receive little or no benefits from nonrefundable tax credits, including the CDCTC. A nonrefundable credit means the amount the taxpayer is potentially eligible to receive is limited to their tax liability. First, even though the credit rate is more generous toward lower-income taxpayers, many low-income families do not receive the credit because the CDCTC is not refundable. The aggregate data on recipients of the CDCTC illuminates several realities. The maximum rate is 35% for taxpayers with an AGI of $15,000 or less, and gradually declines to a rate of 20% for taxpayers with an AGI above $43,000. The credit rate varies based on one’s Adjusted Gross Income (gross income minus adjustments) and is calculated by multiplying the amount of qualifying expenses (up to the maximum credit amount) by the appropriate credit rate based on one’s income. Specifically, taxpayers may claim: (1) up to $3,000 of expenses to acquire care for one qualifying dependent, defined as a child under 13 or an individual incapable of caring for him or herself, or (2) up to $6,000 for two or more dependents. ![]() The CDCTC allows eligible taxpayers to offset a portion of their out-of-pocket child and dependent care expenses necessary for them to stay employed. Because helping parents afford the high costs of child care is such a critical component of their path to financial stability, this brief focuses on those elements of the tax code that specifically offset the high costs of care.Ĭhild and Dependent Care Tax Credit. ![]() Two additional tax credits-the Earned Income Tax Credit and Child Tax Credit-are important components of the tax code for many low-income workers, designed to subsidize their income and foster financial stability. ![]() While many federal programs with direct spending exist to support the wellbeing of families with children, the tax code includes two provisions that specifically help working parents pay for their child care expenses: the Child and Dependent Care Tax Credit (CDCTC) and an exclusion for employer-provided child and dependent care assistance (often called Dependent Care Assistance Plans, or DCAP). A growing consensus of neuroscience and developmental research demonstrates the critical importance of a child’s earliest years, meaning there is high potential for the conditions of poverty to “compromise children’s life achievement and employment opportunities” by failing to foster their cognitive, social, and emotional development. However, this ignores another significant policy option available to support families with young children – the tax system. The tax code includes a variety of policies that encourage work, benefit families with children, and offset the cost of child care, all providing clear immediate and long-term benefits.Ĭhildren under age six have the highest poverty rates among any demographic nationally, and financial instability during early childhood can have significant, long-lasting consequences. As such, every dollar a parent receives, through earned income, child care subsidies, tax credits, or other benefits, is critical.Īdvocates for families and children often focus on improving and increasing direct assistance programs as a way to help working parents access and afford child care, such as the Child Care and Development Block Grant, the Temporary Assistance for Needy Families program, and Head Start. However, families frequently struggle with the high cost of care that in turn impacts their ability to find and keep stable employment and to provide for their family and the healthy development of their children. How Two Tax Policies Help Working Families Access and Afford Child CareĬhild care is necessary for working parents with young children. Give Search Keywords Submit Policy Areas.
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