April 10, 2025
Ms. Smith (for herself, Mrs. Shaheen, Mr. Warnock, Mr. Wyden, Mrs. Murray, Mr. Fetterman, Mr. Schatz, Ms. Duckworth, Ms. Hirono, Mr. Van Hollen, Mr. Durbin, Ms. Klobuchar, Mr. Heinrich, Ms. Cantwell, Mr. King, Mr. Merkley, Mr. Blumenthal, Mr. Booker, Ms. Slotkin, Mr. Reed, Mr. Bennet, Mr. Murphy, Mr. Welch, Mr. Gallego, Mr. Schumer, Mr. Schiff, Ms. Baldwin, Mrs. Gillibrand, Mr. Whitehouse, and Mr. Luján) introduced the following bill; which was read twice and referred to the Committee on Finance
To amend the Internal Revenue Code of 1986 to enhance the Child and Dependent Care Tax Credit and make the credit fully refundable for certain taxpayers.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
Section 1. Short title
This Act may be cited as the Child and Dependent Care Tax Credit Enhancement Act of 2025
.
Sec. 2. Enhancement of Child and Dependent Care Tax Credit
(a) In general
Paragraph (2) of section 21(a) of the Internal Revenue Code of 1986 is amended to read as follows:
(2) Applicable percentage
(A) In general
For purposes of paragraph (1), the term applicable percentage means 50 percent reduced (but not below the phaseout percentage) by 1 percentage point for each $2,000 (or fraction thereof) by which the taxpayer's adjusted gross income for the taxable year exceeds $125,000.
(B) Phaseout percentage
For purposes of subparagraph (A), the term phaseout percentage means 20 percent reduced (but not below zero) by 1 percentage point for each $2,000 (or fraction thereof) by which the taxpayer’s adjusted gross income for the taxable year exceeds $400,000.
(b) Increase in dollar limit on amount creditable
Subsection (c) of section 21 of the Internal Revenue Code of 1986 is amended—
(1)
in paragraph (1), by striking $3,000
and inserting $8,000
; and
(2)
in paragraph (2), by striking $6,000
and inserting $16,000
.
(c) Special rule for married couples filing separate returns
Paragraph (2) of section 21(e) of the Internal Revenue Code of 1986 is amended to read as follows:
(2) Married couples filing separate returns
(A) In general
In the case of married individuals who do not file a joint return for the taxable year—
(i)
the applicable percentage under subsection (a)(2) and the number of qualifying individuals and aggregate amount excludable under section 129 for purposes of subsection (c) shall be determined with respect to each such individual as if the individual had filed a joint return with the individual's spouse, and
(ii)
the aggregate amount of the credits allowed under this section for such taxable year with respect to both spouses shall not exceed the amount which would have been allowed under this section if the individuals had filed a joint return.
(B) Regulations
The Secretary shall prescribe such regulations or other guidance as is necessary to carry out the purposes of this subsection.
(d) Adjustment for inflation
Section 21 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:
(i) Inflation adjustment
(1) In general
In the case of a calendar year beginning after 2025, the $125,000 amount in paragraph (2) of subsection (a) and the dollar amounts in subsection (c) shall each be increased by an amount equal to—
(A)
such dollar amount, multiplied by
(B)
the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting
calendar year 2024forcalendar year 2016in subparagraph (A)(ii) thereof.(2) Rounding
If any dollar amount, after being increased under paragraph (1), is not a multiple of $100, such dollar amount shall be rounded to the next lowest multiple of $100.
(e) Credit made refundable
Section 21(g) of the Internal Revenue Code of 1986 is amended to read as follows:
(g) Credit made refundable for certain individuals
If the taxpayer (in the case of a joint return, either spouse) has a principal place of abode in the United States (determined as provided in section 32) for more than one-half of the taxable year, the credit allowed under subsection (a) shall be treated as a credit allowed under subpart C (and not allowed under this subpart).
(f) Effective date
The amendments made by this section shall apply to taxable years beginning after December 31, 2024.