Legislation Search

H.R. 2994: Child and Dependent Care Tax Credit Enhancement Act of 2025

This bill is titled the Child and Dependent Care Tax Credit Enhancement Act of 2025. It aims to amend the current Child and Dependent Care Tax Credit under the Internal Revenue Code to enhance its value and improve its accessibility for qualifying taxpayers. The primary changes proposed in this bill include:

1. Enhanced Applicable Percentage

The percentage of expenses allowed for the credit will increase. The applicable percentage will be set at 50%, but this will diminish by 1 percentage point for each $2,000 of adjusted gross income above $125,000, with certain limits on the phaseout.

2. Increased Dollar Limits on Credit

The bill proposes to raise the maximum amounts that can be claimed for childcare expenses:

For one qualifying individual, the limit will rise from $3,000 to $8,000.
For two or more qualifying individuals, the limit will increase from $6,000 to $16,000.

3. Special Provisions for Married Couples Filing Separately

Married individuals who file separately will be able to determine their applicable percentage and the number of qualifying individuals based on the assumption that they filed jointly with their spouse. However, the total credit claim allowed for both spouses combined cannot exceed what would have been allowed had they filed jointly.

4. Inflation Adjustment

Starting from the year 2025, the income thresholds and dollar limits set forth in the bill will be automatically adjusted for inflation, ensuring that the credit remains relevant over time.

5. Refundability of the Credit

The proposal states that the Child and Dependent Care Tax Credit will be refundable for certain individuals. This means that eligible taxpayers may receive the credit as a cash refund even if they do not owe any federal income tax.