Legislation recently reintroduced by U.S. Sen. Richard Burr (R-NC) aims to make childcare more affordable by updating and improving existing federal tax credits designed to help offset childcare costs.
The Promoting Affordable Childcare for Everyone (PACE) Act, introduced by Burr and U.S. Sen. Angus King (I-ME), would update the Child and Dependant Care Tax Credit (CDCTC) and Dependent Care Flexible Spending Accounts (FSAs). Both programs apply to childcare, elder care and care for individuals with disabilities.
“Childcare tax credits work,” Burr said. “This is an issue that I’ve been working on with Sen. King for years, and I will continue to push for commonsense solutions that save American families money. President Trump has prioritized making childcare more affordable through the tax code, so we feel strongly that the PACE Act should be on the table as a way to help working families afford the safe childcare they need.”
The bill would make the CDCTC refundable so that more low-income working parents benefit. It also would increase the credit rate for families of all income levels and create a new top credit rate of 50 percent that phases down to 35 percent for higher income families, and it would index the credit to inflation.
In nearly half the nation, the annual cost of full-time childcare for a 4-year-old is greater than the average cost of in-state tuition at a four-year college or university. As a result, many workers spend on average more than 30 percent of their income on childcare.
“Too often today, the rising costs of childcare force parents to stay home from work or put their kids in less than ideal childcare situations — and neither of those circumstances are good,” King said. “We need to bring the federal government’s childcare tax benefits out of the past and into the 21st century so that they reflect the realities that families face today and can provide them with the real, substantial assistance they were intended to.”
The bill would increase allowable pre-tax dollars that can be put into FSAs from $5,000 to $7,500, and it would index the new cap to inflation to ensure that FSAs keep pace with rising childcare costs.