H.R. 2900: Promoting Affordable Childcare for Everyone Act

The bill known as the "Promoting Affordable Childcare for Everyone Act" aims to modify tax policies related to childcare expenses in the United States. Here are the main components of the legislation:

1. Child and Dependent Care Tax Credit Enhancement

The bill proposes to redesignate the existing Child and Dependent Care Tax Credit under the Internal Revenue Code. This change will increase the credit percentages available to taxpayers:

• The maximum percentage of qualifying childcare expenses eligible for the credit will increase from 35% to 50% for lower-income families. The reduction threshold for the percentage will also change from 20% to 35%, allowing more families to qualify for the higher rates.

Additionally, starting in 2026, the dollar amounts related to the tax credit will be adjusted annually based on inflation, ensuring that the credit keeps pace with cost-of-living increases.

2. Refundability of the Tax Credit

The amended child and dependent care tax credit will be fully refundable, meaning that families who do not owe federal income taxes can still receive the credit as a cash refund. This change is designed to benefit lower-income families who may be in need of childcare assistance the most.

3. Increase in Employer-Provided Dependent Care Assistance Exclusion

The bill aims to increase the tax exclusion amount for employer-provided dependent care assistance from the current limits. Specifically:

• The exclusion for dependent care benefits provided by employers will rise from $5,000 to $7,500 per year.

This adjustment is intended to alleviate some of the financial burdens families face in covering childcare expenses through employer-sponsored programs.

4. Annual Inflation Adjustments

Similar to the adjustments made to the child and dependent care credit, the exclusion amount for employer-provided dependent care assistance will also be subjected to annual inflation adjustments starting in 2027, which means this amount will increase based on the cost of living each year.

5. Effective Dates

The amendments outlined in this bill would come into effect for taxable years beginning after December 31, 2025, allowing for these changes to be implemented in the tax filings for the 2026 tax year and beyond.

Relevant Companies

None found.