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Wednesday, April 27, 2011

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 December 31, 2012. These changes include increases for the 
  • maximum credit rate for the dependent care tax credit (DCTC) from 30% to 35%; 
  • income level at which the credit rate for the DCTC phases down from $10,000 to $15,000; and 
  • 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 addition, the FY2012 Budget released by the Obama Administration in February 2011 proposes to increase the DCTC for families earning between $15,000 and $103,000 annually.

This report discusses current tax treatment of dependent care expenses under the DCTC and the dependent care assistance programs (DCAP), and issues for Congress in expanding tax benefits for working caregivers (including President Obama’s Budget proposal).

Date of Report: April 21, 2011
Number of Pages: 13
Order Number: RS21466
Price: $29.95

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