Tax Bias and the Child and Dependent Care Tax Credit
February 26, 2021
Last month, Senator Mitt Romney introduced a proposal to enact a “child allowance,” a monthly payment to households with children. His proposal would be financed in part by repealing other child benefits, including the “Child and Dependent Care Tax Credit” (CDCTC). Many critics of the CDCTC claim that repealing it would reduce a bias in favor of working parents with formal childcare arrangements over stay-at-home parents. In reality, however, repealing the CDCTC would exacerbate the tax system’s current bias against working parents.
The CDCTC is a nonrefundable credit equal to 20 to 35 percent of “qualifying” child and dependent care expenses. Taxpayers can claim the credit for up to $3,000 in expenses per child but no more than $6,000 in total. The credit is available only to taxpayers who are working or looking for work.
