2 years ago
There’s a fat tax break for kids, worth thousands of dollars to their parents, but it’s not the one getting all the attention.
While the Child Tax Credit has dominated the debate in Washington, there’s another provision with a similar name that provides an even bigger benefit to some parents, thanks to a major expansion pushed through by Democrats.
To the frustration of some lawmakers, though, the Child and Dependent Care Credit hasn’t gotten nearly the same notice.
That has prompted more than a little finger pointing, with some Democrats complaining the White House has not done enough to publicize the break.
“The Treasury Department and White House seem to have made no meaningful effort to raise awareness about the $4,000 per child CDCTC,” a group of Democratic senators said in a recent letter to the administration.
“As families live under the burden of rising prices, they need to know about the solutions that their government is providing them.”
Unless something changes, people will only be able to claim the beefed-up credit this filing season. Democrats only approved the expansion on a temporary basis, and efforts to make it permanent have run aground, along with the rest of their “reconciliation” agenda.
The break has been overshadowed, and often confused with, the much better-known Child Tax Credit, one of the centerpieces of the Democrats’ agenda.
While the child credit is a break simply for having children, the child and dependent care provision is specifically aimed at helping defray the cost of child care expenses, including day care and day camps, before- and after-school care, nannies, and au pairs. It can also be claimed by people caring for the elderly and disabled.
Democrats briefly considered renaming it, to avoid confusion with the child credit. It has a few nicknames — some lawmakers refer to it as the child care tax credit; among tax preparers, it’s sometimes called the babysitter credit.
For some families, it’s worth more than the child credit.
Democrats cranked up that credit to $3,000 per kid, from $2,000, for those making less than $150,000, with an extra $600 for children under the age of six. But they went even further with child and dependent care, which maxes out at $8,000 for two or more kids, up nearly fourfold from $2,100.
Some lawmakers complain the administration has all but ignored the provision, even as it aggressively promotes the child credit.
“I’m working to get the word out so as many families as possible take advantage,” said Sen. Bob Casey (D-Pa.), one of thirteen lawmakers who signed the letter.
The White House acknowledges the complaints, but says the administration has been touting the provision, pointing to events in which officials talked it up and a section added to the official childtaxcredit.gov website highlighting the dependent credit.
“We had done more — and we’re planning to do more — than they were aware of, but I welcomed their push,” said Gene Sperling, a senior adviser to President Biden.
It’s not necessarily surprising the Child Tax Credit has gotten more attention.
For one thing, it benefits many more people. And, unlike the dependent care provision, they didn’t have to wait until tax time to begin taking it after last year's expansion. Tens of millions of families received monthly checks beginning last July representing half the credit. The remainder is claimed when they file their returns.
That initiative expired at the end of 2021.
“The fact that we were elevating [the CTC] was not because we were backing off in any way on the child care [tax credit] proposal,” said Sperling.
“It would be harder in October to be doing publicity about a tax credit that, unlike the CTC, was not going to be available till months later during the filing season.”
Until last year, Congress hadn’t made any substantive changes to the dependent care credit since George W. Bush was president. The maximum credit hadn’t been touched since 2001, falling far behind inflation. And the average benefit — which is based on a formula taking into account how much people earn and what they spent on child care — was about $600.
That all changed last year when Democrats pushed through their $1.9 trillion stimulus package, where they not only upped the credit but also made it available to many more people.
Previously, people could only claim it if it offset their tax bills, and typically, somewhere in the neighborhood of 40 percent of taxpayers don’t make enough money to pay federal income taxes — which meant low earners got little or nothing out of the provision.
Democrats made the break “refundable,” which means people who didn’t owe taxes could receive it in the form of a payment from the government.
That’s likely one reason why the average tax refund is up 13 percent this year.
Though it can be larger than the child credit, fewer people take the dependent break for their kids because it’s harder to claim — they need to show they spent money on child care in order to qualify. For the maximum $8,000 benefit, for example, people have to spend at least $16,000 on child care.
Low earners are more likely to rely on informal care arrangements rather than paid care, research shows, which isn’t eligible for the credit.
And although lawmakers expanded the provision to help families through the coronavirus pandemic, some people cut back on paid child care because of the pandemic when day cares were closed, or if they were concerned about their kids getting sick or if a parent lost their job.
At the same time, others may have spent more on child care during the outbreak if prolonged school closures, for example, prompted them to put kids in day camps.
Like Democrats’ expansion of the child credit, the supercharged dependent care break expired at the end of last year. It’s possible Democrats may extend it if they’re able to revive their reconciliation plans.
While Sen. Joe Manchin (D-W.Va.) has objected to his colleagues’ bid to extend the child credit, he has said little about the other provision.
In the meantime, Democrats hope this year’s filing season will put a spotlight on the overlooked credit.
“It got a little lost in the shuffle, but we’re hoping that people, when they do their taxes, realize that this is a pretty significant benefit,” said House Ways and Means Chair Richard Neal (D-Mass.).
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