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Reforming the Child and Dependent Care Tax Credit

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Publication Date: June 2007

Publisher(s): Tax Policy Center

Author(s): Jeff Rohaly

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Banking and finance (Taxation and tax policy)

Keywords: Economy; Federal Budgets & Fiscal Policy; Income and Wealth Distribution; Tax Policy

Type: Report

Abstract:

The child and dependent care tax credit (CDCTC) is a nonrefundable tax credit designed to help offset the expenses of providing care for children under the age of 13 or disabled dependents as long as a parent or caretaker is working or searching for work. In theory, a low-income family can qualify for a maximum $2,100 credit. The credit is not refundable, however, and families with low incomes generally owe little or no income tax. Thus, the theoretical maximum rarely applies in practice. This paper examines the revenue and distributional implications of making the CDCTC fully refundable.