Family Dependent Care Affordability Act of 1997

Summary: Family Dependent Care Affordability Act of 1997 - Amends the Internal Revenue Code to increase the dependent care credit and make it refundable.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Family Dependent Care Affordability 
Act of 1997''.

SEC. 2. REFUNDABLE FAMILY CARE CREDIT AND INCREASE OF CERTAIN 
              LIMITATIONS APPLICABLE TO CREDIT.

    (a) Refundable Credit and Increase of Amount of Employment-Related 
Expenses Taken Into Account and Amount at Which Phase-Down of 
Percentage Begins.--Subpart C of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to refundable credits) 
is amended by inserting after section 34 the following new section:

``SEC. 34A. EXPENSES FOR HOUSEHOLD AND DEPENDENT CARE SERVICES 
              NECESSARY FOR GAINFUL EMPLOYMENT.

    ``(a) Allowance of Credit.--
            ``(1) In general.--In the case of an individual who 
        maintains a household which includes as a member one or more 
        qualifying individuals (as defined in subsection (b)(1)), there 
        shall be allowed as a credit against the tax imposed by this 
        chapter for the taxable year an amount equal to the applicable 
        percentage of the employment-related expenses (as defined in 
        subsection (b)(2)) paid by such individual during the taxable 
        year.
            ``(2) Applicable percentage defined.--For purposes of 
        paragraph (1), the term `applicable percentage' means 30 
        percent reduced (but not below 20 percent) by 1 percentage 
        point for each $2,000 (or fraction thereof) by which the 
        taxpayer's adjusted gross income for the taxable year exceeds 
        $20,000.
    ``(b) Definitions of Qualifying Individual and Employment-Related 
Expenses.--For purposes of this section--
            ``(1) Qualifying individual.--The term `qualifying 
        individual' means--
                    ``(A) a dependent of the taxpayer who is under the 
                age of 13 and with respect to whom the taxpayer is 
                entitled to a deduction under section 151(c),
                    ``(B) a dependent of the taxpayer who is physically 
                or mentally incapable of caring for himself, or
                    ``(C) the spouse of the taxpayer, if he is 
                physically or mentally incapable of caring for himself.
            ``(2) Employment-related expenses.--
                    ``(A) In general.--The term `employment-related 
                expenses' means amounts paid for the following 
                expenses, but only if such expenses are incurred to 
                enable the taxpayer to be gainfully employed for any 
                period for which there are 1 or more qualifying 
                individuals with respect to the taxpayer:
                            ``(i) expenses for household services, and
                            ``(ii) expenses for the care of a 
                        qualifying individual.
                Such term shall not include any amount paid for 
                services outside the taxpayer's household at a camp 
                where the qualifying individual stays overnight.
                    ``(B) Exception.--Employment-related expenses 
                described in subparagraph (A) which are incurred for 
                services outside the taxpayer's household shall be 
                taken into account only if incurred for the care of--
                            ``(i) a qualifying individual described in 
                        paragraph (1)(A), or
                            ``(ii) a qualifying individual (not 
                        described in paragraph (1)(A)) who regularly 
                        spends at least 8 hours each day in the 
                        taxpayer's household.
                    ``(C) Dependent care centers.--Employment-related 
                expenses described in subparagraph (A) which are 
                incurred for services provided outside the taxpayer's 
                household by a dependent care center (as defined in 
                subparagraph (D)) shall be taken into account only if--
                            ``(i) such center complies with all 
                        applicable laws and regulations of a State or 
                        unit of local government, and
                            ``(ii) the requirements of subparagraph (B) 
                        are met.
                    ``(D) Dependent care center defined.--For purposes 
                of this paragraph, the term `dependent care center' 
                means any facility which--
                            ``(i) provides care for more than six 
                        individuals (other than individuals who reside 
                        at the facility), and
                            ``(ii) receives a fee, payment, or grant 
                        for providing services for any of the 
                        individuals (regardless of whether such 
                        facility is operated for profit).
    ``(c) Dollar Limit on Amount Creditable.--The amount of the 
employment-related expenses incurred during any taxable year which may 
be taken into account under subsection (a) shall not exceed--
            ``(1) $3,600 if there is 1 qualifying individual with 
        respect to the taxpayer for such taxable year, or
            ``(2) $5,400 if there are 2 or more qualifying individuals 
        with respect to the taxpayer for such taxable year.
The amount determined under paragraph (1) or (2) (whichever is 
applicable) shall be reduced by the aggregate amount excludable from 
gross income under section 129 for the taxable year.
    ``(d) Earned Income Limitation.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the amount of the employment-related expenses 
        incurred during any taxable year which may be taken into 
        account under subsection (a) shall not exceed--
                    ``(A) in the case of an individual who is not 
                married at the close of such year, such individual's 
                earned income for such year, or
                    ``(B) in the case of an individual who is married 
                at the close of such year, the lesser of such 
                individual's earned income or the earned income of his 
                spouse for such year.
            ``(2) Special rule for spouse who is a student or incapable 
        of caring for himself.--In the case of a spouse who is a 
        student or a qualifying individual described in subsection 
        (b)(1)(C), for purposes of paragraph (1), such spouse shall be 
        deemed for each month during which such spouse is a full-time 
        student at an educational institution, or is such a qualifying 
        individual, to be gainfully employed and to have earned income 
        of not less than--
                    ``(A) $200 if subsection (c)(1) applies for the 
                taxable year, or
                    ``(B) $400 if subsection (c)(2) applies for the 
                taxable year.
        In the case of any husband and wife, this paragraph shall apply 
        with respect to only one spouse for any one month.
    ``(e) Special Rules.--For purposes of this section--
            ``(1) Maintaining household.--An individual shall be 
        treated as maintaining a household for any period only if over 
        half the cost of maintaining the household for such period is 
        furnished by such individual (or, if such individual is married 
        during such period, is furnished by such individual and his 
        spouse).
            ``(2) Married couples must file joint return.--If the 
        taxpayer is married at the close of the taxable year, the 
        credit shall be allowed under subsection (a) only if the 
        taxpayer and his spouse file a joint return for the taxable 
        year.
            ``(3) Marital status.--An individual legally separated from 
        his spouse under a decree of divorce or of separate maintenance 
        shall not be considered as married.
            ``(4) Certain married individuals living apart.--If--
                    ``(A) an individual who is married and who files a 
                separate return--
                            ``(i) maintains as his home a household 
                        which constitutes for more than one-half of the 
                        taxable year the principal place of abode of a 
                        qualifying individual, and
                            ``(ii) furnishes over half of the cost of 
                        maintaining such household during the taxable 
                        year, and
                    ``(B) during the last 6 months of such taxable year 
                such individual's spouse is not a member of such 
                household,
        such individual shall not be considered as married.
            ``(5) Special dependency test in case of divorced parents, 
        etc.--If--
                    ``(A) paragraph (2) or (4) of section 152(e) 
                applies to any child with respect to any calendar year, 
                and
                    ``(B) such child is under the age of 13 or is 
                physically or mentally incapable of caring for himself,
        in the case of any taxable year beginning in such calendar 
        year, such child shall be treated as a qualifying individual 
        described in subparagraph (A) or (B) of subsection (b)(1) 
        (whichever is appropriate) with respect to the custodial parent 
        (within the meaning of section 152(e)(1)), and shall not be 
        treated as a qualifying individual with respect to the 
        noncustodial parent.
            ``(6) Payments to related individuals.--No credit shall be 
        allowed under subsection (a) for any amount paid by the 
        taxpayer to an individual--
                    ``(A) with respect to whom, for the taxable year, a 
                deduction under section 151(c) (relating to deduction 
                for personal exemptions for dependents) is allowable 
                either to the taxpayer or his spouse, or
                    ``(B) who is a child of the taxpayer (within the 
                meaning of section 151(c)(3)) who has not attained the 
age of 19 at the close of the taxable year.
        For purposes of this paragraph, the term `taxable year' means 
        the taxable year of the taxpayer in which the service is 
        performed.
            ``(7) Student.--The term `student' means an individual who 
        during each of 5 calendar months during the taxable year is a 
        full-time student at an educational organization.
            ``(8) Educational organization.--The term `educational 
        organization' means an educational organization described in 
        section 170(b)(1)(A)(ii).
            ``(9) Identifying information required with respect to 
        service provider.--No credit shall be allowed under subsection 
        (a) for any amount paid to any person unless--
                    ``(A) the name, address, and taxpayer 
                identification number of such person are included on 
                the return claiming the credit, or
                    ``(B) if such person is an organization described 
                in section 501(c)(3) and exempt from tax under section 
                501(a), the name and address of such person are 
                included on the return claiming the credit.
        In the case of a failure to provide the information required 
        under the preceding sentence, the preceding sentence shall not 
        apply if it is shown that the taxpayer exercised due diligence 
        in attempting to provide the information so required.
    ``(f) Inapplicability if Adjusted Gross Income Over $50,000 
($80,000 for Joint Returns).--No credit shall be allowed under 
subsection (a) if the taxpayer's adjusted gross income for the taxable 
year exceeds $50,000 ($80,000 in the case of a joint return).
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section.''
    (b) Conforming Amendments.--
            (1) Repeal of section 21.--Subpart A of part IV of 
        subchapter A chapter 1 of such Code (relating to nonrefundable 
        personal credits) is amended by striking section 21.
            (2) Additional conforming amendments.--Each of the 
        following provisions of such Code is amended by striking 
        ``section 21'' and inserting ``section 34A'':
                    (A) Section 129(a)(2)(C).
                    (B) Section 129(b)(2).
                    (C) Section 129(e)(1).
                    (D) Section 213(e).
    (c) Clerical Amendments.--
            (1) The table of sections for subpart C of part IV of 
        subchapter A of chapter 1 of such Code is amended by inserting 
        after the item relating to section 34 the following new item:

                              ``Sec. 34A. Expenses for household and 
                                        dependent care services 
                                        necessary for gainful 
                                        employment.''
            (2) The table of sections for subpart A of part IV of 
        subchapter A chapter 1 of such Code is amended by striking the 
        item relating to section 21.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.