Eager to help families manage the escalating cost of child care, at least six states over the past two years expanded income tax credits that reimburse working parents for some child and dependent care expenses.
In the latest move, West Virginia’s Republican-led legislature this month created a credit worth half the federal child and dependent care credit. Legislators estimate that West Virginia families who claim the federal tax break receive about $434 a year, so the state credit will add an extra $225.
Gov. Jim Justice (R), who championed the measure, called the new tax break “a good start.”
“I’ve said it 15,000 times, we needed to put more money into child care than we did,” he said during a statewide address.
Kansas Gov. Laura Kelly (D) and Republican legislative leaders this year agreed to raise the state’s child care tax credit from 25% to 50% of the federally allowable amount as part of a larger tax cut deal. Wisconsin Gov. Tony Evers (D) signed off on GOP-backed legislation that expanded the state’s maximum child credit from $1,050 for two or more dependents to $7,000.
While supporters of the tax breaks say every penny helps working families, advocates for affordable child care say policymakers should do much more to directly subsidize providers and families — as some state leaders are trying to do.
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Advocates point out that child care tax credits tend to offer families little relief from crushing bills and in many cases exclude parents who earn too little to owe income taxes.
“Obviously these tax credits are not enough. Even if they are expanded. Even if they are refundable,” said Kathryn Menefee, senior counsel for income security at the National Women’s Law Center, a Washington, D.C.-based nonprofit. “What we need is greatly expanded investments in direct child care assistance.”
Child care costs can be staggering. A year’s tuition for an infant in a formal daycare center put the typical family back $15,417 in large urban counties and $7,461 in small rural counties in 2018, according to the latest estimates from the U.S. Department of Labor.
That’s equivalent to 19.3% and 12.3% of family incomes in such counties, respectively. And it’s not far from the $10,230 families could expect to pay per year for four years of in-state public college tuition in 2018, according to the nonprofit College Board.
The federal child care credit reimburses families for a tiny fraction of their spending.
Families get the maximum credit of $2,100 if they owe taxes, have an adjusted gross income of $15,000 or less, and spend $6,000 or more on formal care for two or more dependents. The size of the credit shrinks as income rises, with the maximum credit capped at $1,200 for families earning $43,000 or more.
Families that claimed the 2022 credit got an average tax cut of just $625, according to the Urban-Brookings Tax Policy Center, a joint venture between two Washington, D.C.-based think tanks
Congress temporarily increased the federal credit during the Covid-19 pandemic, but it’s now back to levels that haven’t budged in more than two decades.
State leaders are stepping in with their own tax breaks.
Twenty-seven states and Washington, D.C. offer income tax credits that reimburse families for some child or dependent care spending, according to a Pluribus News analysis. An additional three states — Idaho, Massachusetts and Virginia — offer tax deductions.
State credits are typically pegged to the federal credit, although some states, such as Oregon, have their own formulas. Fourteen states provide credits to very low-income families who don’t owe income taxes and thus are ineligible for the federal credit, according to Tax Credits for Workers and Families, an initiative that promotes tax credits for low-wage workers.
Efforts to expand the tax cuts faltered in some states last session.
Illinois Sen. Jill Tracy’s (R) proposal to create a state credit worth 25% of the federal credit went nowhere in the Democrat-led legislature. She said Democrats were more focused on creating a child tax credit — not a child care credit — which is based on the number of children one has rather than the amount spent on care.It was signed into law in June.
Progressive leaders and advocacy groups that focus on children have embraced child tax credits as a way to reduce child poverty and give families cash to spend on a range of expenses.
Tracy said she’ll bring her bill back next session. “This should be a bipartisan bill,” she said. “It helps your economy, and it helps families. So I’m going to try again.”
Some state leaders went in another direction and proposed tax breaks aimed at boosting private investment in child care businesses. Missouri Gov. Mike Parson (R) this year championed a package of business-focused credits that the House passed but faltered in the Senate.
Rep. Brenda Shields (R), the bill’s sponsor, said the package sought to increase the supply of quality child care providers and help more parents stay in the workforce if they choose. She plans to propose a similar set of incentives next year.
Shields said many House members campaigning for re-election have told her that child care costs are top-of-mind for voters.
“This is one of the No. 1 items that, when they knock on doors, they hear about,” Shields said. “It’s kind of amazing it hasn’t received more discussion nationally.”