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Refundable child and dependent care tax credit

Health Factors: Income
Decision Makers: State Government Federal Government
Evidence Rating: Expert Opinion
Population Reach: 20-49% of WI's population
Impact on Disparities: Likely to decrease disparities

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Description

The child and dependent care tax credit (CDCTC) is available to working families with qualifying children or other dependents (e.g., a spouse with disabilities) that receive care outside the home. CDCTCs are offered by the federal government and some state governments. The federal credit varies by income and number of dependents in care. Parents report care expenses, up to $3,000 per qualifying dependent and $6,000 per family, and receive a nonrefundable credit of 20-35% of that amount, depending on income (Urban-Maag 2011). States that offer CDCTCs have various eligibility rules; similar to the federal CDCTC, credit amounts vary by income. Although the federal credit is not refundable, state CDCTCs can be partially or fully refundable.

Expected Beneficial Outcomes

Increased employment

Evidence of Effectiveness

Establishing refundable child and dependent care tax credits is a suggested strategy to encourage work in low income families by defraying the cost of care for children and other dependents (Urban-Maag 2011). Available evidence suggests that the lowest income families rarely claim the federal credit, as their tax liability is not high enough to benefit from this nonrefundable credit (Forry 2006). The federal credit is most often taken by middle and higher income families with larger tax liabilities (Forry 2006). Additional evidence is needed to confirm effects and determine optimal tax structure and benefit amounts.

A recent report projects that making the federal child and dependent care tax credit fully refundable, and increasing the percentage of costs reimbursed would reduce child poverty by 1% (146,500 children) and enable 101,000 parents to work, at a cost of approximately $1.6 billion (CDF 2015).

Implementation

United States

Twenty four states offer state dependent care tax credits, 12 of them at least partially refundable (TCWF-CDCTC).

Wisconsin

Wisconsin does not have a state child and dependent care tax credit (TCWF-CDCTC).

Implementation Resources

IRS-CDCC - Internal Revenue Service (IRS). Topic 602 - Child and Dependent Care Credit. Accessed on November 23, 2015

Citations - Description

Urban-Maag 2011 - Maag E, Rennane S, Steuerle CE. A reference manual for child tax benefits. Washington, DC: Urban Institute; 2011:Discussion Paper No. 32. Accessed on November 23, 2015

Citations - Evidence

CDF 2015 - Ending child poverty now. Washington, DC: Children's Defense Fund (CDF); 2015. Accessed on February 4, 2016
Forry 2006* - Forry ND, Anderson EA. The Child and Dependent Care Tax Credit. Marriage & Family Review. 2008;39(1-2):159–76. Accessed on November 24, 2015
Urban-Maag 2011 - Maag E, Rennane S, Steuerle CE. A reference manual for child tax benefits. Washington, DC: Urban Institute; 2011:Discussion Paper No. 32. Accessed on November 23, 2015

Citations - Implementation

TCWF-CDCTC - Tax Credits for Working Families (TCWF). States with CDCTCs. Accessed on November 24, 2015

Page Last Updated

March 11, 2015

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