A bill to amend the Internal Revenue Code of 1986 to provide a credit for increasing wages paid to child care providers.

Bill Number

S. 3534

Origin Chamber

Senate

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-12-17: Read twice and referred to the Committee on Finance.

Last Updated

2026-01-20T15:41:15Z

AI-Generated Summary

Purpose

This bill (S. 3534) aims to encourage employers to increase wages for child care workers by introducing a new tax credit. The goal is to support the child care industry, potentially improving the quality and availability of child care services across the United States.

Key Provisions

• Child Care Supply Credit (New Section 45BB): Employers can claim a tax credit equal to 5% of qualified wages paid to child care workers. This increases to 7% for wages paid at facilities located in rural areas (defined as any non-urban area under federal highway law).
• Qualified Wages: These are wages paid to employees who provide child care services at eligible facilities. Wages follow the definition in the tax code for unemployment insurance (Section 3306(b)), but exclude amounts already used for other tax credits to prevent double benefits.
• Qualified Child Care Worker: An employee working at an eligible child care facility who directly provides care, education, protection, supervision, or guidance to children.
• Eligible Child Care Facility: A facility that:
• Serves at least 6 children.
• Receives fees, payments, or grants for child care services.
• Complies with all relevant state or local laws and regulations.
• Opt-Out Option: Employers can elect not to claim the credit for any tax year.
• Integration with Existing Tax Rules:
• The credit is added to the general business credit (Section 38(b)).
• It qualifies for elective payment (direct cash refund) under Section 6417 for eligible taxpayers.
• No deduction is allowed for wages that qualify for this credit (Section 280C(a)) to avoid overlapping tax benefits.
• Effective Date: Applies to tax years beginning after the bill's enactment.

Significant Changes to Existing Law

• Adds a entirely new tax credit (Section 45BB) to the Internal Revenue Code, specifically targeting the child care sector, which was not previously addressed in this way.
• Expands the list of business credits under Section 38(b) by adding this as the 42nd item.
• Includes it in the elective payment rules under Section 6417(b), allowing certain tax-exempt or non-profit entities (like many child care providers) to receive refunds.
• Amends Section 280C(a) to block wage deductions for this credit, ensuring it doesn't stack with other tax breaks.

Potential Impacts

• On Government Agencies: The Internal Revenue Service (IRS) will need to administer a new credit, potentially increasing administrative workload and reducing federal tax revenue (estimated cost not specified in the bill). It could indirectly support workforce participation by bolstering child care.
• On Citizens: Child care workers may see higher wages, improving retention and quality in the sector. Families could benefit from more stable and affordable child care options. Employers in child care gain tax incentives, possibly lowering operational costs.
• On International Relations: No direct impacts, as this is a domestic tax policy focused on U.S. child care.

Main Stakeholders Affected

• Employers and Child Care Facilities: Primary beneficiaries through tax credits, especially non-profits or small operators in rural areas.
• Child Care Workers: Indirectly gain from incentivized wage increases.
• Families and Children: Potential improvements in child care access and quality.
• Taxpayers and Government: Broader taxpayers may face reduced revenue, while the IRS handles implementation.

Notable Legal, Constitutional, or Political Implications

• Legal: The credit aligns with existing tax code structures for business incentives, with built-in safeguards against abuse (e.g., no double benefits, opt-out rules). It requires compliance with state/local regulations, reinforcing federalism in child care oversight.
• Constitutional: No apparent challenges; it uses Congress's taxing and spending powers under Article I to promote economic welfare without infringing on individual rights.
• Political: Introduced bipartisanship (by Sen. Warner, D-VA, and Sen. Justice, R-WV), signaling potential broad support for addressing child care shortages. It could influence future debates on workforce support and tax expenditures, especially post-pandemic recovery efforts.

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

Sponsor

Sen. Warner, Mark R. [D-VA]

Cosponsors (1)

Sen. Justice, James C. [R-WV]

Recent Actions

• 2025-12-17: Read twice and referred to the Committee on Finance.
• 2025-12-17: Introduced in Senate

Bill Versions

• To amend the Internal Revenue Code of 1986 to provide a credit for increasing wages paid to child care providers. — issued 2025-12-17 — PDF (5 pages)