Sponsors (10)
The bill raises and indexes the employer-dependent-care exclusion to give working families with employer plans a larger, inflation-protected tax break, at the cost of reduced federal revenue, uneven benefits for those without employer coverage, and some implementation costs for employers and agencies.
Parents and families with employer-provided dependent care assistance can exclude up to $10,000 ($5,000 for married filing separately) from taxable income, lowering their federal tax burden.
Taxpayers (especially parents) will see the exclusion indexed to inflation so the tax benefit keeps its real value over time instead of eroding.
Employers and payroll administrators get a clear, permanent statutory cap and indexing rule, reducing year-to-year uncertainty for plan design and payroll withholding.
Taxpayers generally: Raising the exclusion lowers individual taxable income and may reduce federal revenue, which could increase pressure on other taxes or spending priorities.
Low-income and unemployed families without employer-sponsored dependent care plans receive little direct benefit, so the change chiefly helps workers with employer benefits rather than those lacking access.
Employers and federal payroll systems will incur one-time administrative and compliance costs to update systems and guidance to reflect the new cap and indexing.
Based on analysis of 2 sections of legislative text.
Doubles the employer-dependent-care pretax exclusion to $10,000 ($5,000 separate filers) and indexes the amounts for inflation.
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
This bill raises the maximum employer-provided dependent care exclusion (the pretax benefit many employees receive to pay for childcare) from $5,000 to $10,000 per year for joint filers (and from $2,500 to $5,000 for separate filers) and makes those dollar limits automatically adjust for inflation. It removes an outdated special rule for 2021 and takes effect for calendar years beginning after December 31, 2024 (i.e., the 2025 tax year). The change is implemented by amending the Internal Revenue Code provision that governs exclusion of employer-provided dependent care assistance: it substitutes higher caps and adds an inflation-indexing provision that ties future limits to the federal cost-of-living adjustment rounded to the nearest $50.