Summary

Increases federal tax support for work-related child and dependent care by raising the employer-provided child care tax credit, increasing the tax-free exclusion for employer dependent care assistance, and creating a new refundable tax credit for household and dependent care expenses that enable a taxpayer to work. The changes raise benefit amounts and caps, add special rules for jointly operated facilities and small employers, and include income-based phase-downs for the new refundable credit. Most changes apply to amounts paid or incurred after enactment or to taxable years beginning after enactment.

Key Points

• Raises the employer-provided child care tax credit percentage and increases the maximum credit available.
• Clarifies tax treatment for jointly owned or operated child care facilities and adds a small‑business rule for the employer credit.
• Increases the tax‑free exclusion for employer-dependent care assistance to $7,500 (with $3,750 referenced for the alternate filing treatment).
• Creates a new refundable individual credit for household and dependent care expenses that enable a taxpayer to work.
• The new credit begins at a 50% credit rate on eligible expenses and phases down as income rises, subject to per-year dollar caps.
• The new credit is refundable, so taxpayers can receive a refund even if the credit exceeds their tax liability.
• Most employer/dependent-care changes apply to amounts paid or incurred after enactment; the new credit applies to taxable years beginning after enactment.
• Requires IRS implementation and guidance to define eligible expenses, qualifying persons, and practical administration details.

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