S. 1421

119th CONGRESS 1st Session

To amend the Internal Revenue Code of 1986 to enhance the Child and Dependent Care Tax Credit and make the credit fully refundable for certain taxpayers.

IN THE SENATE OF THE UNITED STATES · April 10, 2025 · Sponsor: Ms. Smith · Committee: Committee on Finance

Table of contents

• S. 1421
  • SEC. 1. Short title
  • SEC. 2. Enhancement of Child and Dependent Care Tax Credit

SEC. 1. Short title

• This Act may be cited as the Child and Dependent Care Tax Credit Enhancement Act of 2025.

SEC. 2. Enhancement of Child and Dependent Care Tax Credit

• (a) In general
  • Paragraph (2) of of the Internal Revenue Code of 1986 is amended to read as follows: section 21(a)
    • (2) Applicable percentage
      • (A) In general
        • For purposes of paragraph (1), the term applicable percentage means 50 percent reduced (but not below the phaseout percentage) by 1 percentage point for each $2,000 (or fraction thereof) by which the taxpayer's adjusted gross income for the taxable year exceeds $125,000.
      • (B) Phaseout percentage
        • For purposes of subparagraph (A), the term phaseout percentage means 20 percent reduced (but not below zero) by 1 percentage point for each $2,000 (or fraction thereof) by which the taxpayer’s adjusted gross income for the taxable year exceeds $400,000.
• (b) Increase in dollar limit on amount creditable
  • Subsection (c) of of the Internal Revenue Code of 1986 is amended— section 21
    • in paragraph (1), by striking $3,000and inserting $8,000; and
    • in paragraph (2), by striking $6,000and inserting inserting6,000.
• (c) Special rule for married couples filing separate returns
  • Paragraph (2) of of the Internal Revenue Code of 1986 is amended to read as follows: section 21(e)
    • (2) Married couples filing separate returns
      • (A) In general
        • In the case of married individuals who do not file a joint return for the taxable year—
          • (i) the applicable percentage under subsection (a)(2) and the number of qualifying individuals and aggregate amount excludable under section 129 for purposes of subsection (c) shall be determined with respect to each such individual as if the individual had filed a joint return with the individual's spouse, and
          • (ii) the aggregate amount of the credits allowed under this section for such taxable year with respect to both spouses shall not exceed the amount which would have been allowed under this section if the individuals had filed a joint return.
      • (B) Regulations
        • The Secretary shall prescribe such regulations or other guidance as is necessary to carry out the purposes of this subsection.
• (d) Adjustment for inflation
  • of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: Section 21
    • (i) Inflation adjustment
      • (1) In general
        • In the case of a calendar year beginning after 2025, the $125,000 amount in paragraph (2) of subsection (a) and the dollar amounts in subsection (c) shall each be increased by an amount equal to—
          • such dollar amount, multiplied by
          • the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting for in subparagraph (A)(ii) thereof. calendar year 2024 calendar year 2016
      • (2) Rounding
        • If any dollar amount, after being increased under paragraph (1), is not a multiple of $100, such dollar amount shall be rounded to the next lowest multiple of $100.
• (e) Credit made refundable
  • of the Internal Revenue Code of 1986 is amended to read as follows: Section 21(g)
    • (g) Credit made refundable for certain individuals
      • If the taxpayer (in the case of a joint return, either spouse) has a principal place of abode in the United States (determined as provided in section 32) for more than one-half of the taxable year, the credit allowed under subsection (a) shall be treated as a credit allowed under subpart C (and not allowed under this subpart).
• (f) Effective date
  • The amendments made by this section shall apply to taxable years beginning after December 31, 2024.