PACE Act

Bill Number

H.R. 2900

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-04-10: Referred to the House Committee on Ways and Means.

Last Updated

2026-03-13T13:30:09Z

AI-Generated Summary

Purpose of the Legislation

The Promoting Affordable Childcare for Everyone Act (PACE Act), H.R. 2900, aims to make childcare more affordable by enhancing tax benefits for families. It amends the Internal Revenue Code of 1986 (IRC) to expand the Child and Dependent Care Tax Credit, making it fully refundable (meaning eligible taxpayers can receive it as a payment even if they owe no taxes), increasing the credit's generosity, and raising the limit on tax-free employer-provided dependent care assistance.

Key Provisions

• Refundability of the Credit (Section 2): Redesignates the existing Child and Dependent Care Tax Credit (IRC section 21) as section 36C and relocates it to the part of the tax code for refundable credits. Includes technical updates to related IRC sections to reflect this change. Applies to tax years beginning after December 31, 2025.
• Enhancement of the Credit (Section 3):
• Increases the credit rate from a maximum of 35% (reduced but not below 20% based on income) to a maximum of 50% (reduced but not below 35%).
• Removes the previous income-based phase-out limit (subsection (g)) that restricted the credit for higher earners.
• Adds an inflation adjustment for the dollar limits on qualifying expenses (up to $3,000 for one dependent or $6,000 for two or more) starting in 2026, tied to the cost-of-living index and rounded to the nearest $50. Applies to tax years beginning after December 31, 2025.
• Increase in Employer-Provided Assistance Exclusion (Section 4): Raises the annual tax-free limit for employer-sponsored dependent care benefits from $5,000 ($2,500 for married filing separately) to $7,500 (half for married filing separately). Adds an inflation adjustment starting in 2027, rounded to the nearest $100. Applies to tax years beginning after December 31, 2025.

Significant Changes to Existing Law

• From Non-Refundable to Refundable: Previously, the Child and Dependent Care Tax Credit could only offset taxes owed (non-refundable). Now, as a refundable credit under section 36C, it provides direct payments to qualifying taxpayers, similar to the Earned Income Tax Credit.
• Higher Credit Rates and Broader Access: Boosts the percentage of expenses eligible for credit and eliminates the prior cap that phased out the credit entirely for higher-income families (over $43,000 adjusted gross income in current law).
• Inflation Protections: Introduces automatic adjustments for both the credit's expense limits and the employer exclusion amount, which were previously fixed without annual updates.
• Higher Employer Benefit Limit: Increases the excludable amount for dependent care assistance programs (like flexible spending accounts), allowing more tax-free support without changing eligibility rules.

Potential Impacts

• On Citizens: Families with young children or dependents needing care (e.g., disabled relatives) will gain greater financial relief, potentially reducing out-of-pocket childcare costs by thousands of dollars annually. Low- and moderate-income households benefit most from refundability, encouraging workforce participation, especially for parents. Higher-income families see expanded access without phase-outs.
• On Government Agencies: The Internal Revenue Service (IRS) will process more refund claims, increasing administrative workload and federal spending (estimated higher payouts, though no cost figure is in the bill). No direct impact on other agencies.
• On International Relations: None apparent; this is a domestic tax policy focused on U.S. families and employers.

Main Stakeholders Affected

• Families and Taxpayers: Primary beneficiaries, particularly working parents or caregivers of dependents under age 13 (or older if disabled), across income levels but especially those with limited tax liability.
• Employers: Companies offering dependent care assistance programs gain flexibility to provide up to $7,500 tax-free, potentially improving employee retention and benefits packages.
• Tax Professionals and Advisors: Will need to adjust advice and filings due to redesignated code sections and new calculations.
• Childcare Providers: Indirectly supported through increased family affordability, possibly boosting demand for services.

Notable Legal, Constitutional, or Political Implications

• Legal: Aligns with existing IRC frameworks for family tax credits but requires IRS guidance on implementation (e.g., forms and audits). No challenges to constitutionality anticipated, as it involves standard congressional taxing power under Article I, Section 8 of the U.S. Constitution.
• Constitutional: Neutral; enhances equal protection for families without discriminating by class or status.
• Political: Represents bipartisan support (introduced by Reps. Tenney and Schneider) for family-friendly policies, potentially influencing future tax reforms. Could face debate over fiscal costs amid budget concerns, but promotes equity in childcare access without new mandates.

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

Sponsor

Rep. Tenney, Claudia [R-NY-24]

Cosponsors (2)

Rep. Schneider, Bradley Scott [D-IL-10], Rep. Vindman, Eugene Simon [D-VA-7]

Recent Actions

• 2025-04-10: Referred to the House Committee on Ways and Means.
• 2025-04-10: Introduced in House
• 2025-04-10: Introduced in House

Bill Versions

• Promoting Affordable Childcare for Everyone Act — issued 2025-04-10 — PDF (6 pages)