LITTLE Act of 2025

Bill Number

H.R. 1067

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-02-06: Referred to the House Committee on Ways and Means.

Last Updated

2025-05-05T15:55:15Z

AI-Generated Summary

Purpose of the Legislation

The LITTLE Act of 2025 (H.R. 1067) aims to support childcare access and affordability by amending the Internal Revenue Code of 1986. It introduces a new tax credit for childcare providers starting businesses and enhances the existing credit for household and dependent care expenses, making it more generous and refundable to help working families cover costs.

Key Provisions

• Childcare Provider Startup Credit (New Section 45BB):
• Provides a non-refundable tax credit equal to 30% of qualified startup expenses (e.g., costs to establish and operate a childcare service, similar to business startup costs under existing tax rules).
• Eligible taxpayers must provide childcare services to at least two children for a significant part of the tax year and comply with state or local regulations.
• Total credit limited to $10,000 across all tax years for a single taxpayer.
• Applies to expenses paid or incurred after the date of enactment; integrated into the general business credit system.
• Prevents double benefits by denying the credit for expenses already deducted or credited elsewhere.

• Enhanced Household and Dependent Care Credit (New Section 36C, Repealing Old Section 21):
• Offers a refundable tax credit (meaning it can result in a payment if it exceeds tax liability) of up to 50% of employment-related expenses, phasing down to a minimum of 35% based on adjusted gross income (AGI) over $15,000 (reduces by 1% for each $2,000 above that threshold).
• Covers expenses for care of "qualifying individuals," defined as:
• Dependents under age 13.
• Physically or mentally incapable dependents or spouses living with the taxpayer for more than half the year.
• Expense limits: Up to $7,500 for one qualifying individual or $15,000 for two or more, reduced by any employer-provided dependent care benefits excluded from income.
• Limited to the taxpayer's earned income (or the lesser of spouses' earned income if married); special rules deem minimal income for students or incapable spouses.
• Excludes payments to close relatives (e.g., dependents or children under 19) and requires provider identifying information (name, address, taxpayer ID) on tax returns.
• Inflation adjustments apply starting in tax years after 2024, based on cost-of-living changes.
• Additional rules: Married couples generally must file jointly; special provisions for separated or divorced parents, living-apart spouses, and dependent care centers (facilities caring for more than six non-residents for a fee).
• Applies to tax years beginning after enactment.

Significant Changes to Existing Law

• New Startup Credit: Introduces an entirely new provision (Section 45BB) not previously in the tax code, targeting childcare business formation to address provider shortages.
• Dependent Care Credit Overhaul:
• Replaces the non-refundable Child and Dependent Care Credit (old Section 21) with a more expansive, refundable version (Section 36C).
• Increases expense limits from $3,000 (one child) / $6,000 (two or more) to $7,500 / $15,000.
• Makes the credit refundable, allowing low-income families with little or no tax liability to receive cash benefits.
• Adjusts phaseout threshold to start at $15,000 AGI (similar to prior law but with a steeper reduction rate) and adds inflation indexing.
• Updates cross-references in related tax sections (e.g., employer benefits under Section 129, adoption credits) to align with the new rules.
• Eliminates the old credit entirely, streamlining the code but requiring conforming amendments to other provisions like math error checks and refund rules.

Potential Impacts

• On Government Agencies: The IRS will need to update forms, systems, and guidance for administering the new credits, including verifying provider compliance and inflation adjustments; could increase refund processing workload but reduce audits for qualifying claims.
• On Citizens: Families, especially working parents with young children or disabled dependents, may see reduced childcare costs (potentially up to $5,250 refund for max expenses at 35% rate), encouraging employment and easing financial strain. New providers could expand services, improving childcare availability in underserved areas.
• On International Relations: Minimal direct impact, as this is a domestic tax policy focused on U.S. families and businesses.
• Broader Effects: May boost labor force participation among parents, support economic growth through childcare sector expansion, and address affordability amid rising costs, though it could reduce federal tax revenue by billions annually (exact estimates would require fiscal analysis).

Main Stakeholders Affected

• Childcare Providers: New or expanding small businesses benefit from startup credit, potentially lowering entry barriers and increasing supply.
• Families and Taxpayers: Working parents (especially lower- and middle-income) gain from higher, refundable credits; single parents, divorced custodians, and those with disabled dependents see targeted relief.
• Employers: Indirectly affected via updated rules for dependent care assistance programs (Section 129), which may encourage more offerings.
• Government: IRS and Treasury Department handle implementation; Congress and state/local regulators influence compliance standards.

Notable Legal, Constitutional, or Political Implications

• Legal: Strengthens tax equity by making benefits accessible to non-taxpayers via refunds; requires IRS regulations for enforcement (e.g., due diligence for provider info). No double-dipping protections maintain code integrity, but repeal of old Section 21 could disrupt ongoing claims if not transitioned carefully.
• Constitutional: Aligns with Congress's taxing and spending powers under Article I; promotes general welfare through family support without infringing on state childcare regulations (which remain applicable).
• Political: Positions as pro-family and pro-workforce legislation, appealing to bipartisan interests in childcare affordability; may spark debates on tax expenditure costs versus social benefits, potentially influencing future budget negotiations or expansions like universal pre-K. Neutral on partisanship, focusing on economic relief without ideological mandates.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Gottheimer, Josh [D-NJ-5]

Recent Actions

• 2025-02-06: Referred to the House Committee on Ways and Means.
• 2025-02-06: Introduced in House
• 2025-02-06: Introduced in House

Bill Versions

• Lowering Infant and Toddler Tuition for Learning and Education Act of 2025 — issued 2025-02-06 — PDF (16 pages)