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The effects of the Child and Dependent Care Tax Credit on child care affordability: How temporary changes to the Child and Dependent Care Tax Credit will affect child care affordability in 2021 and how we can think about improving the tax credit for the long term

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Description:

The following brief has two aims; first, to explain the significance of the American Rescue Plan’s changes in the context of the existing CDCTC structure. And second, to prompt an informed discussion on how to improve the CDCTC, and to ensure these changes are sustained for the families who can least afford quality child care. It is a certainty that the child care affordability crisis will not cease after 2021. For many families in the United States, child care was unaffordable before the pandemic, and with the increased health and safety costs providers must cover going forward, will continue to be so after the pandemic. This brief intends to clarify this tax policy so that policymakers may consider how to better structure the credit to help low-income families afford child care beyond the the timeline of the American Rescue Plan and the current health crisis. To accomplish these goals, the brief first outlines the existing CDCTC, prior to changes made in the American Rescue Plan, and the reasons it fails to support low-income families. It then discusses several facets that policymakers could change to improve the credit and how such changes would affect families. Finally, this brief models the CDCTC under the American Rescue Plan. It examines how the changes could—both alone and in conjunction with changes to the Dependent Care Assistance Program (DCAP) exclusion—better support low-income families with child care needs and how the country can build off these temporary improvements going forward. (author abstract)

Resource Type:
Fact Sheets & Briefs
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Country:
United States

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