Is The Tax Credit For Child Care Permanent?

The Child and Dependent Care Credit (CDCC) is a tax credit that helps families pay for the care of eligible children and other dependents. It is calculated based on income and a percentage of expenses incurred for the child or household member. The credit is nonrefundable and available to taxpayers with dependent children under the age of 17. As part of pandemic relief, the U.S. turned a child tax credit into a monthly payment for millions of families, with the first payments reaching bank accounts in 2021.

The American Rescue Plan Act (ARPA) expanded the maximum child tax credit (CTC) in 2021, increasing it to $3,000 per child aged 6 and over and $3,600 per child under 6. The Biden administration proposed making the ARPA expansion of the CDCTC permanent, allowing eligible taxpayers to claim the credit on their tax return in 2025.

The CTC is nonrefundable, meaning taxpayers without federal income tax liability cannot benefit from it. However, the changes to the CTC were allowed to expire, returning it to its original structure for 2022 with lower credit amounts. Enacted in 1997, the credit currently provides up to $2,000 per child to about 40 million families every year.

The American Rescue Plan made historic expansions to child tax credits, which are available to the federal government and 15 states. Children must have a Social Security number for families to be eligible. The American Rescue Plan extended the full Child Tax Credit permanently to Puerto Rico and the U.S. Territories.

The expanded Child Tax Credit lowers taxes for families but is set to expire.