Sponsors (10)
The bill raises and indexes the employer-dependent-care exclusion to give working families and employers a larger, inflation-protected tax break and greater certainty, but it reduces federal revenue, imposes short-term administrative costs, and largely benefits those with employer-sponsored plans rather than low-income or uninsured families.
Parents and families with employer-provided dependent care assistance can exclude up to $10,000 ($5,000 if married filing separately) from taxable income, reducing their federal tax burden; the exclusion is indexed to inflation so its real value is preserved over time.
Employers and payroll administrators get a permanent statutory limit and an indexing rule, reducing year-to-year uncertainty for plan design and payroll withholding.
Low-income, unemployed, and families without employer-sponsored dependent care plans receive little or no benefit, so the change disproportionately helps workers with employer benefits rather than the most financially vulnerable families.
Taxpayers at large may face marginally higher taxes or reduced government spending elsewhere because the higher exclusion will lower federal revenue.
Small businesses, payroll administrators, and the IRS will incur near-term administrative and compliance costs to update systems and guidance to implement the new cap and indexing rules.
Based on analysis of 2 sections of legislative text.
Doubles the employer-dependent care exclusion caps to $10,000/$5,000 and adds annual inflation indexing to those dollar limits.
Official title: To amend the Internal Revenue Code of 1986 to index dependent care assistance programs to inflation.
Introduced January 15, 2025 by Stephanie I. Bice · Last progress January 15, 2025
Raises the maximum employer-provided dependent care exclusion for taxable income from $5,000 to $10,000 for joint filers (and from $2,500 to $5,000 for separate filers) and adds annual inflation indexing to the dollar limits. It also removes an obsolete 2021 special-rule and makes the changes effective for calendar years beginning after December 31, 2024. The change is made by amending the Internal Revenue Code provision that governs employer-provided dependent care assistance, increasing the statutory caps and instructing the IRS to adjust the amounts each year using a cost-of-living formula with $50 rounding.