WASHINGTON — U.S. Congresswoman Stephanie Murphy of Winter Park, Fla. introduced today bipartisan legislation to help hard-working families in central Florida access affordable child care. The Promoting Affordable Childcare for Everyone Act (PACE Act), cosponsored by Republican Jason Smith of Missouri, would update two existing provisions in the federal tax code that help cover expenses associated with child or dependent care to make these services more affordable and put more money in the pockets of hardworking families. Child care consumes a large percentage of a Florida working family’s annual income. The average annual cost of child care for a 4-year-old is $7,688 in Florida—well more than the average cost of in-state tuition at a 4-year public college.
“For far too long, working families have struggled with the rising costs of child care. Our tax code should reflect our priorities, and one of our top priorities must be our children,” said Murphy. “I’m proud to lead this bipartisan effort to help parents better afford child care – giving more children a fair shot while growing the middle class.”
“It seems today that daily childcare costs rival the price of sending your child to college,” said Smith. “With the rising costs of care, all too often working families have to make the tough decision about which parent will leave the workforce to stay at home with a child. The PACE Act will go a long way toward helping lower-income and working families provide quality care for their children.”
Currently, the Child and Dependent Care Tax Credit (CDCTC), which Murphy’s legislation seeks to modernize, is a non-refundable tax credit that reduces a federal taxpayer’s income tax liability based on expenses incurred on child or dependent care. Because the credit is non-refundable—meaning the dollar value of the credit cannot exceed a family’s income tax liability—many lower-income families receive little or no credit.
Under this legislation, the CDCTC would be converted to a refundable tax credit to assist individuals with children under the age of 13 who work or are looking for work. Qualifying expenses for this group include payments made for child care services provided inside the home—like payments to nannies, housekeepers, and relatives like grandparents—or outside the home—like day care, nursery school, preschool, and day camp. For dependent care, the tax credit would help individuals who are financially responsible for a spouse or other dependent who is incapable of caring for themselves.
Finally, the PACE Act would update another provision in the federal tax code to enable families to exclude from their income up to $7,500 of employer-sponsored child and dependent care benefits, which include flexible spending accounts (FSAs) that allow employees to set aside a portion of their employee’s salary on a pre-tax basis to be used for qualifying expenses; direct payments by an employer to a child care center; on-site care offered by an employer; and employer reimbursement of employee child care costs.
A similar version of the bill was previously introduced in the 115th Congress. A companion version of the bill has been introduced in the Senate.
Murphy’s bipartisan bill has been endorsed by Childcare Aware, the Council for a Strong America, First Five Years Fund, First Focus, Kindercare, and Save the Children Action Network.
“Helping American families pay for child care is one of the best investments our country can make. The PACE Act supports children and parents by ensuring access to quality early childhood care and education while parents are participating in the workforce,” said Mark Shriver, CEO of Save the Children Action Network. “The PACE Act would provide families with the opportunity to invest in their child’s future, particularly for children living in poverty who lack an equal opportunity to succeed. Making the Child and Dependent Care Tax Credit fully refundable and adding more value to it are critical to help low-income families provide their children with a strong start in life.”
“Child care is not a luxury for American families—it’s a necessity,” said First Five Years Fund executive director Sarah Rittling.“Yet the costs associated with quality child care now exceed most other expenses faced by families. The reintroduction of the bipartisan PACE Act provides Congress the opportunity to help more working families by expanding the Child and Dependent Care Tax Credit and making it refundable to ensure it reaches the families who need it most. We are grateful to these bipartisan champions in Congress for their leadership in introducing this important legislation on behalf of America’s young children and their families.”
“Council for a Strong America (CSA) applauds Senator Angus King, Senator Richard Burr, Representative Stephanie Murphy, and Representative Jason Smith for reintroducing the bipartisan PACE Act in the 116th Congress,” said Barry Ford, President and CEO of Council for a Strong America. “The lack of affordable, quality child care in America is both an economic and a national security crisis, and the PACE Act is the type of meaningful, bipartisan action we need to directly combat this problem. CSA looks forward to working with the cosponsors of the PACE Act in both the House and Senate as this legislation moves closer to becoming a reality for children and families."
“First Focus Campaign for Children supports the bipartisan Promoting Affordable Childcare for Everyone Act (PACE Act) and thanks Senators King (I-ME) and Burr (R-NC), as well as Representatives Stephanie Murphy (D-FL) and Jason Smith (R-MO), for their leadership to introduce this bill early in the 116th Congress,” said Bruce Lesley, President, First Focus Campaign for Children. “As many families struggle to afford the growing costs of high-quality childcare, the PACE Act would expand the current Child and Dependent Care Tax Credit (CDCTC) significantly by making the credit refundable. This important improvement would benefit more low-income working families with little or no tax liabilities. The conversion of the CDCTC from a nonrefundable credit to a refundable one also reflects an important policy change identified in the recently released National Academies of Sciences study, A Roadmap to Reducing Child Poverty, and would help to reduce child poverty so that all our nation’s children have a fair opportunity to succeed.”
The PACE Act would:
- Make the CDCTC refundable, so a taxpayer can use the credit to reduce their federal tax liability to zero AND receive a refund from the IRS for any credit remaining. This will benefit many lower-income families that do not benefit, or benefit very little, from the current credit.
- Increase the CDCTC credit rate by 15%, so the top rate is 50% (up from 35%) and the bottom rate is 35% (up from 20%)—helping all families who claim the credit. For example, according to estimates from the nonpartisan Congressional Research Service (CRS), under the PACE Act a taxpayer with annual income of $30,000, two children, and $6,000 in child care expenses would receive a credit of $2,520. A taxpayer in the same situation would only receive $1,620 under current law. A taxpayer with $40,000 of annual income and two children would receive a credit of $2,220 under this bill, versus $1,320 under current law. A taxpayer with $50,000 of annual income and two children would receive a credit of $2,100, versus $1,200 under current law.
- Adjust the CDCTC income levels and maximum credit amounts for inflation—$3,000 for a taxpayer with one child, $6,000 for a taxpayer with two or more children—so that more families will be entitled to a higher credit.
- Increase the maximum amount of the income exclusion for employer-sponsored child and dependent care to $7,500, up from the current $5,000, and adjust that amount for inflation going forward. Benefits can be provided in various forms, like flexible spending accounts (FSAs) that allow employees to set aside a portion of their salary on a pre-tax basis to be used for qualifying expenses; direct payments by an employer to a child care center; on-site care offered by an employer; and employer reimbursement of employee child care costs. Since the value of these benefits is excluded from an employee’s wages, it is not subject to income taxes or payroll taxes—and therefore lowers a taxpayer’s tax liability.
For a summary of the PACE Act, click here. The full text of the bill can be found here.