Child Care Availability and Affordability Act
- Bill Number
- S. 847
- Origin Chamber
- Senate
- Congress
- 119th Congress, Session 1
- Policy Area
- Taxation
- Status
- Introduced
- Latest Action
- 2025-03-04: Read twice and referred to the Committee on Finance. (Sponsor introductory remarks on measure: CR S1499-1500)
- Last Updated
- 2026-02-25T12:03:22Z
AI-Generated Summary
Purpose
The "Child Care Availability and Affordability Act" aims to make child care and dependent care more accessible and affordable for working families and employers by enhancing tax incentives. It expands existing tax credits and exclusions in the Internal Revenue Code (IRC) to reduce the financial burden of care services, encouraging employer involvement and supporting parental employment.
Key Provisions
- Employer-Provided Child Care Credit Expansion (Section 2):
- Increases the credit percentage for qualified child care expenditures from 25% to 50% of costs.
- Raises the maximum annual credit amount from $150,000 to $500,000 per employer.
- Allows facilities jointly owned or operated by multiple employers to qualify as a single employer's child care facility.
- Provides a special rule for small businesses (those meeting a gross receipts test over five years, similar to rules for average annual gross receipts under $25 million adjusted for inflation): they receive a higher 60% credit rate and up to $600,000 maximum.
- Applies to expenses paid or incurred after enactment.
- Dependent Care Assistance Exclusion Increase (Section 3):
- Raises the annual exclusion limit for employer-provided dependent care assistance from $5,000 ($2,500 for married filing separately) to $7,500 ($3,750 for married filing separately).
- Applies to amounts paid or incurred after enactment.
- Household and Dependent Care Credit Enhancement (Section 4):
- Replaces the existing non-refundable credit under IRC Section 21 with a new refundable credit under Section 36C, allowing taxpayers to receive a refund even if they owe no tax.
- Offers a credit of up to 50% of employment-related expenses (e.g., for household services or care of qualifying individuals like children under 13 or disabled dependents/spouses), phased down to 35% for incomes over $15,000 and further reduced (to zero) for incomes over $150,000.
- Sets expense limits: $5,000 for one qualifying individual, $8,000 for two or more.
- Limits credit to the taxpayer's earned income (or the lesser of spouses' earned income if married); includes special rules for students or disabled spouses, deeming minimum earned income.
- Includes rules on qualifying individuals, eligible expenses (excluding overnight camps), and restrictions (e.g., no payments to relatives under age 19 or certain dependents; requires provider identifying information).
- Requires joint filing for married couples, with exceptions for separated or living-apart spouses.
- Applies to taxable years beginning after enactment; repeals old Section 21 and makes conforming changes to related IRC sections.
Significant Changes to Existing Law
- Doubles the employer child care credit rate and triples the cap, while adding flexibility for shared facilities and bonuses for small businesses—previously, the credit was limited and did not explicitly allow joint operations.
- Increases the dependent care exclusion by 50%, making more employer benefits tax-free for employees.
- Transforms the individual dependent care credit from non-refundable (limited to tax liability) to refundable, raises expense limits from $3,000/$6,000 to $5,000/$8,000, and adjusts the phase-out structure for broader middle-income access—previously under Section 21, it was up to 35% with stricter income reductions starting at lower thresholds.
Potential Impacts
- On Citizens: Working parents and caregivers could save hundreds or thousands in taxes annually, reducing out-of-pocket child care costs (which average 20-30% of family income in many areas) and potentially increasing labor force participation, especially for mothers. Low- and moderate-income families benefit most from the refundable credit.
- On Government Agencies: The IRS will need to update forms, guidance, and processing for the new refundable credit and expanded provisions, potentially increasing administrative workload but also refund payouts (estimated revenue loss in billions over 10 years, though not specified in the bill).
- On Employers and Businesses: Encourages more companies, especially small ones, to offer or subsidize child care, potentially improving employee retention and productivity; joint facilities could lower costs for multiple employers.
- International Relations: Minimal direct impact, though it may indirectly support U.S. workforce competitiveness by aiding family economic stability.
Main Stakeholders Affected
- Families and Individuals: Parents of young children or caregivers of disabled dependents, particularly those with moderate incomes ($15,000-$150,000), who rely on child care to work.
- Employers: Businesses of all sizes offering or considering child care benefits; small businesses gain extra incentives to participate.
- Child Care Providers: Centers and in-home services may see increased demand due to greater affordability.
- Government: U.S. Treasury and IRS for tax administration; broader economy through potential boosts in employment and tax base growth.
Notable Legal, Constitutional, or Political Implications
- Legal: Shifts tax policy toward more generous, refundable incentives for social welfare, aligning with IRC goals of promoting employment; requires IRS regulations for implementation (e.g., on identifying information). No conflicts with existing tax law beyond targeted repeals and amendments.
- Constitutional: Neutral; involves standard congressional authority over taxation (Article I, Section 8) without infringing on states' rights or individual liberties—enhances equity in tax benefits without discrimination.
- Political: Bipartisan support evident from cosponsors across parties; addresses child care as a workforce and family issue, potentially influencing future debates on paid leave or universal pre-K. Could face scrutiny over federal spending (revenue reduction) in budget reconciliation, but promotes economic inclusion without new mandates.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Cosponsors (21)
Sen. Kaine, Tim [D-VA], Sen. Ernst, Joni [R-IA], Sen. Shaheen, Jeanne [D-NH], Sen. Curtis, John R. [R-UT], Sen. King, Angus S., Jr. [I-ME], Sen. Collins, Susan M. [R-ME], Sen. Gillibrand, Kirsten E. [D-NY], Sen. Capito, Shelley Moore [R-WV], Sen. Klobuchar, Amy [D-MN], Sen. Tillis, Thomas [R-NC], Sen. Hassan, Margaret Wood [D-NH], Sen. McCormick, David [R-PA], Sen. Warner, Mark R. [D-VA], Sen. Tuberville, Tommy [R-AL], Sen. Kelly, Mark [D-AZ], Sen. Sullivan, Dan [R-AK], Sen. Ricketts, Pete [R-NE], Sen. Slotkin, Elissa [D-MI], Sen. Gallego, Ruben [D-AZ], Sen. Justice, James C. [R-WV], Sen. Coons, Christopher A. [D-DE]
Recent Actions
- 2025-03-04: Read twice and referred to the Committee on Finance. (Sponsor introductory remarks on measure: CR S1499-1500)
- 2025-03-04: Introduced in Senate
Bill Versions
- Child Care Availability and Affordability Act — issued 2025-03-04 — PDF (15 pages)