Sponsors (10)
The bill raises and indexes the employer-dependent-care pre-tax exclusion to increase take-home pay for many families and simplify small adjustments for employers, while reducing federal revenue and delivering larger gains to taxpayers with taxable earnings than to low-income families with little taxable income.
Parents and families can exclude up to $10,000 per year in employer-provided dependent care benefits from taxable income, increasing their take-home pay.
Parents and families will see the $10,000 limit indexed to inflation, preserving the benefit's real value over time and preventing erosion from rising costs.
Employers (including small employers) benefit from administrative simplicity because annual increases are rounded to the nearest $50, reducing payroll complexity and smoothing year-to-year changes.
All taxpayers face reduced federal income tax revenue because the higher exclusion lowers tax receipts, which could increase deficits or reduce funding for other programs.
Low-income workers and families with little or no taxable income receive less benefit from the pre-tax exclusion compared with refundable credits, so the change primarily helps those with taxable earnings and may worsen benefit progressivity.
Employers—particularly small employers—may incur administrative costs and burdens updating payroll systems and plan documents to implement the new limit and annual inflation adjustments.
Based on analysis of 2 sections of legislative text.
Doubles the dependent care pre-tax limit from $5,000 to $10,000 and makes it inflation-adjusted with rounding to the nearest $50.
Introduced January 15, 2025 by Stephanie I. Bice · Last progress January 15, 2025
Increases the maximum amount an employee can set aside pre-tax for employer dependent care assistance from $5,000 to $10,000 and makes that dollar limit automatically adjust each year for inflation, rounded to the nearest $50. Changes take effect for calendar years beginning after December 31, 2024 and also remove an existing, unspecified limiting provision in current law.