Will You Benefit from the New Childcare Tax Credit?
According to a release this month by The White House Office of the Press Secretary, the current administration’s budget proposes an increased tax credit for child and dependent care for middle- and low-income families. The administration will propose this tax credit increase along with several other policy initiatives meant to help middle-class families based on “meetings, conversations and feedback from around the country.”
The proposal would nearly double the tax credit for child and dependent care for families that make under $85,000 per year. How? By increasing those families’ tax credit rates from 20 percent to 35 percent of all qualifying expenses. In short, all families that make under $115,000 a year will see an increase in their tax credit. Simply put, the percentage of dependent and childcare expenses that taxpayers with an adjusted gross income of up to $85,000 could claim, will nearly double. In addition, those struggling to get into the middle class may be eligible for additional funding to help pay for childcare. For low-income families, the budget proposes to increase funding for childcare by $1.6 billion with the hope of helping approximately 235,000 additional children.
However, there is a catch to the tax credit.
In order to qualify, caregivers are required to pay someone else to care for their dependents/children. That means that parents who make income concessions, such as split shifts (so that one parent is always present to raise the children), are not eligible for the credit. That includes households where one parent forgoes their income completely so that he or she can stay at home and raise the children.
Thus, while the intention of the tax credit is to help middle class families facilitate more stable homes and home life, it would only provide a financial benefit to families who pay for childcare outside of the home. This is a double-edged sword. Families who already use day care will receive a credit for doing so, but those families who choose to try to create a stable home and family life by keeping one parent at home will be penalized, in essence, by the withholding of this credit from them.
Monheit is the managing lawyer at Monheit Law, outside Philadelphia, Pennsylvania. He has practiced law since 1989. Michael Monheit was the managing attorney of the law offices of Herbert Monheit — now Silverman and Fodera — a firm founded by... Michael Monheit→
