One line in the single-page tax proposal that the Trump administration released on Wednesday will be a welcome sight to parents. A bullet point under “Individual Reform” reads: “Providing tax relief for families with child and dependent care expenses.”
But like other aspects of President Donald Trump’s proposed tax overhaul, there are few details on what shape that relief will take. At a Wednesday briefing on the plan, economic advisor Gary Cohn mentioned the child care tax credit only once, saying simply, “Families in this country will also benefit from tax relief to help them with child and dependent care expenses.” The Treasury Department did not respond to a request for more specifics.
But there’s speculation, thanks to reporting from The Washington Post, that the White House is considering a boost to the Child and Dependent Care Tax Credit, which allows parents to cut up to $2,100 from their tax bill for spending on child care.
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That approach is different from the three child care tax benefits Trump introduced on the campaign trail, and the change could be good news for some parents. The tax credit, according to Amy Matsui, senior counsel and director of Women & the Courts at the National Women’s Law Center, “is more beneficial and works better for lower-income families” than Trump’s initial proposal. The tax credit currently lets parents claim a portion of the money they spend on child and dependent care while they’re at work—up to $3,000 for one child or dependent and up to $6,000 for two or more.
During his bid for the White House, President Trump—reportedly due to pressure from his daughter Ivanka—proposed three ways to help reign in the cost of child care. After an analysis of his ideas, the nonpartisan Tax Policy Center found in February that they would provide “limited benefits to those who are likely to need the most help affording child care.”
The first item in Trump’s campaign proposal, a deduction based on child care expenses, “would primarily benefit higher-income families, including those who do not pay for child care,” according to the Tax Policy Center. The second, a refundable credit for some lower-income families, would only apply to families who both pay for child care and have no stay-at-home parents. Filers who are unmarried with income over $31,200 or are married with income over $62,400 would not qualify for the credit. The third idea, an expansion of child care savings accounts, would provide little upside for cash-strapped families who are unable to save money—while giving “high-income people a new tax sheltering opportunity,” the center says. All told, the Tax Policy Center found that “70% of the total tax benefits would go to families with income above $100,000, and more than 25%t to families with income above $200,000.”
But while focusing on the Child and Dependent Care Tax Credit is perhaps a welcome departure from Trump’s initial plan, it does have its downsides. For starters, the financial relief it gives parents is tiny compared to what they actually spend. Parents can claim up to $3,000 or $6,000 depending on how many kids they have, but they don’t simply lob those amounts from their tax liability. Rather, the value of their tax credit depends on their income. Families with an adjusted gross income of $15,000 or less receive the most—a credit equal to 35%. The rate decreases as families’ income increases, bottoming out at 20% for those who earn $43,000 or more. That means the maximum value of the credit is $1,050 for families with one child and $2,100 for families with two or more. In 2014, the average value of the tax credit among those who claimed it was roughly $550, according to the IRS.
Meanwhile, center-based care for children rivals college tuition in cost. In 49 out of 50 states—Louisiana is the exception—center-based child care for an infant exceeds 7% of family income—the U.S. Department of Health and Human Services’ cutoff for affordability. In the 50 states, the average cost for an infant in center-based care can be as high as $17,082 per year. For a four-year-old, the annual average cost for similar care can range up to $12,796, according to Child Care Aware of America, a child care policy and advocacy organization.
Another problem with the tax credit is that it applies to a families’ tax liability, meaning it “has less or no value” to a parent or family too poor to owe taxes, according to Matsui.
So if the Trump administration wants to improve the Child and Dependent Care Tax Credit, there’s certainly room for it.
One way would be to make it refundable, so rather than applying it against a family’s tax liability, a family would receive a cash refund. That would make the tax credit more beneficial to low- and middle-income families with limited tax burdens.
Another way to improve the tax credit is to up the child care expense limit or increase the percentages of expenses families can claim to better reflect the current cost of child care. The parameters of the tax credit have not been touched since 2001, according to the National Women’s Law Center. There have been attempts to address it since then, says Matsui, but none of them have gained traction in Congress. The latest effort came in January, when Senators Richard Burr (R–N.C.) and Angus King (I–Maine) introduced a bill to make the tax credit refundable. Their proposal also increased the value of the credit by raising the rate for all income levels to a range of 35% to 50% and indexed it to inflation.
Michelle McCready, chief of policy at Child Care Aware of America, says bolstering the tax credit in one way or another would be “a good thing,” but she argues that it’s not a solution for the larger child care cost crisis.
“Doing this to the tax code misses the point that families need help immediately,” she says, since the tax credit only comes once a year. Her organization is pushing for an increase in investment in Child Care and Development Block Grants, which states administer to through vouchers or certificates. Parents can use them for the child care provider or program of their choice.
“Parents can’t want once a year to get relief,” McCready says. “They need it now.”
