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Wednesday, December 15, 2010

Dependent Care: Current Tax Benefits and Legislative Issues

Janemarie Mulvey
Specialist in Aging and Income Security

Christine Scott
Specialist in Social Policy

In the 2000 census, for more than 60% of the households with children under the age of six, all parents in the household worked. Some private surveys show that nearly 40% of those caring for aging parents and older individuals worked. For families, care for young children and older individuals who are physically or mentally unable to care for themselves is critical to maintaining participation in the workforce. To assist these families, current law provides two tax benefits related to dependent care: the dependent care credit and the exclusion from income for employerprovided dependent care assistance programs. Both provisions are for employment-related expenses for the care of dependents under the age of 13, or dependents (or a spouse) who are physically or mentally incapable of caring for themselves.

Some of the current tax provisions that were expanded in 2001 are set to expire after December 31, 2010. Specifically, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16) made several changes to the tax provisions for dependent care that will expire (not be in effect) after December 31, 2010. These changes include:
  • increasing the maximum credit rate for the DCTC from 30% to 35%; 
  • increasing the income level at which the credit rate for the DCTC phases down from $10,000 to $15,000; and 
  • increasing the maximum amount of qualifying expenses from $2,400 to $3,000 for one child and from $4,800 to $6,000 for two or more children. 
In addressing the expiration of these provisions, Congress may also consider whether to expand these tax incentives even more for working caregivers. The importance of this issue is underscored by the expansion of dependent care tax incentives in President Obama’s Legislative Agenda through the White House Task Force on Working Families chaired by Vice President Biden.

This report discusses current tax treatment of dependent care expenses under the dependent care tax credit (DCTC) and the dependent care assistance programs (DCAP); and issues for Congress in expanding tax benefits for working caregivers (including the Obama-Biden proposal).

Date of Report: December 7, 2010
Number of Pages: 13
Order Number: RS21466
Price: $29.95

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