History of the Child Care Tax Credit
The Child Care and Dependent Tax Credit provides financial assistance through a tax credit to the working poor and lower middle class by allowing them to deduct some of their child care costs paid to a licensed third party from the taxes they owe.
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Authority
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Established under U.S. Code Title 26 of the Internal Revenue Code, Section 21, the Child Care and Dependent Tax Credit as it's known today started in 1987 as part of the Economic Growth and Tax Relief Reconciliation Act in 2001. An earlier version in a deduction form was created in 1976.
Initial Versions, 1976 and 2001
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The first kind of any U.S. tax relief for child care costs appeared in 1954 in the Internal Revenue Code. It continued as a deduction, which only provided a benefit in itemized tax filings through 1976. It was then converted to a credit, not needing itemization to be claimed. The 2001 version provided the most generous tax credit version to date.
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Latest Version
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The 2001 credit benefits parents by providing those earning under $15,000 adjusted gross income a tax credit for 35 percent of costs against taxes owed. This falls to 20 percent at $43,000, and then levels out for those earning more. A ceiling of $3,000 per child up to $6,000 for multiple children is allowed.
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References
- VLex: 26 USC 21 - Sec. 21. Expenses for household and dependent care services necessary for gainful employment
- U.S. Internal Revenue Service: Top Ten Facts About the Child and Dependent Care Credit
- U.S. Internal Revenue Service: Publication 503 -- Child and Dependent Care Expenses
- U.S. Internal Revenue Service: Tax Topic 602 - Child and Dependent Care Credit
- Boston College: Child Care Subsidies in the United States: Government Funding to Families (2010)
Resources
- Photo Credit child playing image by Christopher Hall from Fotolia.com
