CHILD Act of 2025
- Sponsor
- Rep. Bice, Stephanie I. [R-OK-5]
- Committees
- Ways and Means Committee (primary)
- Last action
- Jan 15, 2025
Bottom line
The bill aims to make dependent care more affordable for families by doubling the tax-advantaged contribution limit for dependent care assistance programs and adjusting it annually for inflation.
What it actually does
This bill significantly increases the maximum amount of dependent care assistance that employees can exclude from their gross income from $5,000 to $10,000 annually (or $2,500 to $5,000 for married individuals filing separately). Crucially, it also mandates that these new limits be adjusted annually for inflation, using a cost-of-living adjustment formula based on a 2023 calendar year baseline, ensuring the benefit's value is preserved over time.
Proponents argue
Proponents argue that the current limits for dependent care assistance programs are severely outdated and fail to reflect the dramatically increased costs of childcare and elder care. They contend that indexing these limits to inflation will provide much-needed financial relief to working families, encourage workforce participation, and help combat the economic strain caused by high inflation on essential care services, thereby supporting family economic stability.
Opponents contend
Opponents might argue that increasing the exclusion limit primarily benefits higher-income earners who are more likely to utilize employer-sponsored dependent care assistance programs and can afford higher care costs, potentially exacerbating income inequality. They may also raise concerns about the significant potential revenue loss to the federal government, which could contribute to the national debt or necessitate cuts in other vital programs.
The bill is exceptionally short and clearly written, making it highly accessible for any reader to quickly understand its core provisions and implications.
Section 2(a) of the bill, amending Section 129(a)(2)(A) of the Internal Revenue Code of 1986.
Doubling of Dependent Care Assistance Program Exclusion Limit
This provision significantly increases the maximum amount of dependent care assistance that an employee can exclude from their gross income. The limit for most taxpayers rises from $5,000 to $10,000 per year, while for married individuals filing separately, it increases from $2,500 to $5,000. This change allows families to allocate a larger portion of their income to pre-tax dependent care accounts, resulting in greater tax savings for eligible expenses.
Supporters argue
Supporters argue that the current limits have not kept pace with the rapidly rising costs of childcare and elder care, making it increasingly difficult for many families to afford necessary care. Doubling the limit provides meaningful financial relief, supports parents (especially mothers) in remaining in the workforce, and acknowledges the economic realities faced by modern families.
Critics contend
Critics might argue that this benefit disproportionately favors higher-income families who are more likely to have access to and fully utilize employer-sponsored DCAPs, and who can afford higher care costs. They may also point to the potential for significant federal revenue loss without corresponding offsets, contributing to fiscal challenges.
Tradeoffs
The provision balances the goal of providing substantial financial relief to families with dependent care costs against concerns about potential federal revenue loss and the distributional equity of tax benefits, as access to DCAPs is not universal.
Section 2(b) of the bill, adding new subsection (f) to Section 129 of the Internal Revenue Code.
Inflation Indexing for Dependent Care Assistance Limits
This provision mandates that the newly increased dollar amounts for dependent care assistance programs ($10,000 and $5,000) be adjusted annually for inflation. The adjustment will be based on the cost-of-living adjustment determined under Section 1(f)(3) of the Internal Revenue Code, using calendar year 2023 as the base year, and rounded to the nearest $50. This mechanism ensures that the real value of the tax exclusion is maintained over time, preventing its erosion by inflation.
Section 2(c) of the bill, amending Section 129(a)(2) of the Internal Revenue Code.
Repeal of Expired Temporary Exclusion Limit
This provision makes a technical amendment to the Internal Revenue Code by striking subparagraph (D) from Section 129(a)(2). Subparagraph (D) was a temporary measure from the American Rescue Plan Act of 2021 that temporarily increased the dependent care assistance program exclusion limit to $10,500 for the 2021 taxable year only. Since this temporary increase has expired, its removal is a legislative cleanup to remove obsolete text from the code.
This section repeals subparagraph (D) of Section 129(a)(2) of the Internal Revenue Code, which was a temporary provision that increased the dependent care assistance program exclusion limit to $10,500 for the 2021 taxable year only.
Section 2(c)
Why it matters:This is standard legislative practice for cleaning up the code after temporary provisions expire. It is not intended to be evasive but rather a technical housekeeping measure to maintain the code's accuracy.
Case for: Removing expired provisions simplifies the tax code, reduces potential confusion for taxpayers and tax preparers, and ensures that the published code accurately reflects current law.
Case against: No significant case against, as it is a non-controversial technical cleanup of an expired provision that has no current legal effect.
Estimated impact: The impact is minimal, primarily administrative simplification for the IRS and tax professionals by removing obsolete text.