Family Tax Relief Act of 2009
May 7, 2009: On Thursday, May 7th, 2009 Senators Blanche Lincoln (D-AR) and Olympia Snowe (R-ME) introduced the Family Tax Relief Act of 2009 in an effort to make quality child care more accessible and affordable for our nation's working families by increasing the size of the Child and Dependent Care Tax Credit and making it fully refundable.
WHY PASS THE FAMILY TAX RELIEF ACT OF 2009?
The cost of child care has sky-rocketed over the past decade, costing, on average, approximately $10,000 per year for a young child in a licensed care facility. According to the National Association of Child Care Resource & Referral Agencies, even child care in an unlicensed, less expensive, family care home can cost more than $9,000 per year. In every region of the U.S., average monthly child care fees for an infant are higher than the average monthly cost of food. The nation's working poor are hit the hardest-According to U.S. Census Bureau Statistics, those living below the federal poverty line spend nearly one-third their income on child care. Yet, although the credit was designed to benefit low-income working parents, only 3% of total dollars claimed by tax payers through the CDCTC in 2006 went to households earning below 20%. The current credit does not reflect the current reality.
If enacted, the Family Tax Relief Act would:
- Make the CDCTC fully refundable, extending needed child care assistance to all working families
- Increase the maximum percentage of eligible child care expenditures from 35% to 50% for those earning less than $30,000 per year
- Increase the child care expenditure cap from $3,000 to $5,000 for one child/dependent and from $6,000 to $10,000 for multiple children/dependents
- Increase the value on the employer-exclusion for dependent care costs from $5,000 to $7,500 for one child/dependent and $10,000 for multiple children/dependents
WHAT IS THE CHILD AND DEPENDENT CARE TAX CREDIT?
The size of the CDCTC depends on several factors, including the total amount of money a family spent on child or dependent care throughout the year, the number of qualifying children/dependents, and the amount of the household's annual earned income. Currently, for a household with one qualifying child and income less than $15,000 per year, the credit is calculated at 35% of up to $3,000 in eligible child care expenses. The percentage of eligible expenses phases down as a household's income increases until, for households with an annual earned income above $43,000, the credit amounts to 20% of eligible expenses. This results in a maximum credit of $1,050 for one child/dependent and $2,100 for multiple children/dependents.
Additionally, the CDCTC is a non-refundable tax credit. Unlike tax deductions, which reduce the overall taxable income, tax credits subtract directly from the amount owed by the tax payer to the federal government. In the case of some very low-income earners, credits can reduce a taxpayer's liability to, or even below, $0. In these cases, if the credit is "refundable," the taxpayer received the leftover in the form of a refund check. Since the CDCTC is not refundable, the credit has no benefit for taxpayers with no federal income tax liability due to low income and additional credits. The practical impact of the CDCTC's non-refundability is that the working families who most need assistance with the high cost of child care (including any household earning less than $15,000) receive no credit.