A Proposed New Tax Credit Would Help More Families Pay for Child Care

By Tara Schoenborn

A new report from the Center for American Progress (CAP) makes it clear that we need to do more to help families pay for child care. And it suggests that a new tax credit might be the answer.

More than 12 million children under the age of five are in child care each week in this country and a majority of these children live in households where both parents work. Finding affordable and high-quality care is extremely challenging for many of these families. The CAP report, A New Vision for Child Care in the United States, points out that from 2000 to 2012, child care costs for a typical middle-class American family grew by $2,300, with costs in many areas skyrocketing past average annual tuition at a public four-year university.

Although the United States has the third-highest child care costs in the world, it spends significantly less than other countries when it comes to providing funds for child care assistance. CAP argues that existing support programs such as the Child and Dependent Care Tax Credit (CDCTC) don’t go far enough. The report calls for an additional tax credit to help ensure all families who need it can pay for child care.

CAP’s proposed High-Quality Child Care Tax Credit would provide an annual tax credit of up to $14,000 per child to cover the cost of high-quality care for low- and middle-income families. The tax credit would be advanced to families each month and paid to the child care provider of the parent’s choice.

The credit would be available to families earning up to 400 percent of the federal poverty line (about $97,000 a year for a family of four). A sliding scale would be used to determine a family’s share of the costs, ranging from 2 percent of income for families living near the poverty line to 12 percent for those earning above 250 percent of the poverty line.

In the long term, CAP says the tax credit would help families save thousands of dollars a year and provide them with opportunities to increase their overall financial security.

To learn more about how tax credits are helping families cover child care and other costs, visit our website.