II

104TH CONGRESS

1ST SESSION S. 410

To amend the Internal Revenue Code of 1986 to make the dependent care

credit refundable, and for other purposes.

IN THE SENATE OF THE UNITED STATES

FEBRUARY 14 (legislative day, JANUARY 30), 1995

Ms. SNOWE introduced the following bill; which was read twice and referred

to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to make

the dependent care credit refundable, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. DEPENDENT CARE TAX CREDIT.

4 (a) DEPENDENT CARE SERVICES.—Subpart C of

5 part IV of subchapter A of chapter 1 of the Internal Reve6 nue Code of 1986 (relating to refundable credits) is

7 amended by redesignating section 35 as section 36 and

8 by inserting after section 34 the following new section:

9 ‘‘SEC. 35. DEPENDENT CARE SERVICES.

10 ‘‘(a) ALLOWANCE OF CREDIT.—
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1 ‘‘(1) IN GENERAL.—In the case of an individual

2 who maintains a household which includes as a

3 member 1 or more qualifying individuals, there shall

4 be allowed as a credit against the tax imposed by

5 this subtitle for the taxable year an amount equal to

6 the applicable percentage of the sum of—

7 ‘‘(A) the employment-related expenses paid

8 by such individual during the taxable year, plus

9 ‘‘(B) the respite care expenses paid by

10 such individual during the taxable year.

11 ‘‘(2) APPLICABLE PERCENTAGE DEFINED.—

12 ‘‘(A) IN GENERAL.—For purposes of para13 graph (1), the term ‘applicable percentage’

14 means 50 percent reduced (but not below 20

15 percent) by 1 percentage point for each full

16 $1,000 amount by which the taxpayer’s ad17 justed gross income for the taxable year exceeds

18 $15,000.

19 ‘‘(B) COST-OF-LIVING ADJUSTMENT.—

20 ‘‘(i) IN GENERAL.—In the case of a

21 taxable year beginning in a calendar year

22 after 1996, subparagraph (A) shall be ap23 plied by increasing the $15,000 amount

24 contained therein by the cost-of-living ad25 justment (as defined in section 1(f)(3)) for
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1 such calendar year determined by sub2 stituting ‘‘1995’’ for ‘‘1992’’ in subpara3 graph (B) of section 1(f)(3).

4 ‘‘(ii) ROUNDING.—If any increase de5 termined under clause (i) is not a multiple

6 of $10, such increase shall be rounded to

7 the nearest multiple of $10 (or if such in8 crease is a multiple of $5, such increase

9 shall be increased to the next highest mul10 tiple of $10).

11 ‘‘(b) EMPLOYMENT-RELATED EXPENSES.—For pur12 poses of this section—

13 ‘‘(1) DETERMINATION OF ELIGIBLE EX14 PENSES.—

15 ‘‘(A) IN GENERAL.—The term ‘employ16 ment-related expenses’ means amounts paid for

17 the following expenses, but only if such ex18 penses are incurred to enable the taxpayer to be

19 gainfully employed for any period for which

20 there are 1 or more qualifying individuals with

21 respect to the taxpayer:

22 ‘‘(i) expenses for household services,

23 and

24 ‘‘(ii) expenses for the care of a quali25 fying individual.
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1 Such term shall not include any amount paid

2 for services outside the taxpayer’s household at

3 a camp where the qualifying individual stays

4 overnight and shall not include any respite care

5 expense taken into account under subsection

6 (a).

7 ‘‘(B) EXCEPTION.—Employment-related

8 expenses described in subparagraph (A) which

9 are incurred for services outside the taxpayer’s

10 household shall be taken into account only if in11 curred for the care of—

12 ‘‘(i) a qualifying individual described

13 in subsection (d)(1), or

14 ‘‘(ii) a qualifying individual (not de15 scribed in subsection (d)(1)) who regularly

16 spends at least 8 hours each day in the

17 taxpayer’s household.

18 ‘‘(C) DEPENDENT CARE CENTERS.—Em19 ployment-related expenses described in subpara20 graph (A) which are incurred for services pro21 vided outside the taxpayer’s household by a de22 pendent care center (as defined in subpara23 graph (D)) shall be taken into account only if—
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1 ‘‘(i) such center complies with all ap2 plicable laws and regulations of a State or

3 unit of local government, and

4 ‘‘(ii) the requirements of subpara5 graph (B) are met.

6 ‘‘(D) DEPENDENT CARE CENTER DE7 FINED.—For purposes of this paragraph, the

8 term ‘dependent care center’ means any facility

9 which—

10 ‘‘(i) provides care for more than 6 in11 dividuals (other than individuals who re12 side at the facility), and

13 ‘‘(ii) receives a fee, payment, or grant

14 for providing services for any of the indi15 viduals (regardless of whether such facility

16 is operated for profit).

17 ‘‘(2) DOLLAR LIMIT ON AMOUNT CRED18 ITABLE.—

19 ‘‘(A) IN GENERAL.—The amount of the

20 employment-related expenses incurred during

21 any taxable year which may be taken into ac22 count under subsection (a) shall not exceed—

23 ‘‘(i) $2,400 if there is 1 qualifying in24 dividual with respect to the taxpayer for

25 such taxable year, or
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1 ‘‘(ii) $4,800 if there are 2 or more

2 qualifying individuals with respect to the

3 taxpayer for such taxable year.

4 The amount determined under clause (i) or (ii)

5 (whichever is applicable) shall be reduced by the

6 aggregate amount excludable from gross income

7 under section 129 for the taxable year.

8 ‘‘(B) REDUCTION IN LIMIT FOR AMOUNT

9 OF RESPITE CARE EXPENSES.—The limitation

10 of subparagraph (A) shall be reduced by the

11 amount of the respite care expenses taken into

12 account by the taxpayer under subsection (a)

13 for the taxable year.

14 ‘‘(3) EARNED INCOME LIMITATION.—

15 ‘‘(A) IN GENERAL.—Except as otherwise

16 provided in this paragraph, the amount of the

17 employment-related expenses incurred during

18 any taxable year which may be taken into ac19 count under subsection (a) shall not exceed—

20 ‘‘(i) in the case of an individual who

21 is not married at the close of such year,

22 such individual’s earned income for such

23 year, or

24 ‘‘(ii) in the case of an individual who

25 is married at the close of such year, the
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1 lesser of such individual’s earned income or

2 the earned income of his spouse for such

3 year.

4 ‘‘(B) SPECIAL RULE FOR SPOUSE WHO IS

5 A STUDENT OR INCAPABLE OF CARING FOR

6 HIMSELF.—In the case of a spouse who is a

7 student or a qualified individual described in

8 subsection (d)(3), for purposes of subparagraph

9 (A), such spouse shall be deemed for each

10 month during which such spouse is a full-time

11 student at an educational institution, or is such

12 a qualifying individual, to be gainfully employed

13 and to have earned income of not less than—

14 ‘‘(i) $200 if paragraph (2)(A)(i) ap15 plies for the taxable year, or

16 ‘‘(ii) $400 if paragraph (2)(A)(ii) ap17 plies for the taxable year.

18 In the case of any husband and wife, this sub19 paragraph shall apply with respect to only one

20 spouse for any one month.

21 ‘‘(c) RESPITE CARE EXPENSES.—For purposes of

22 this section—

23 ‘‘(1) IN GENERAL.—The term ‘respite care ex24 penses’ means expenses paid (whether or not to en25 able the taxpayer to be gainfully employed) for—
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1 ‘‘(A) the care of a qualifying individual—

2 ‘‘(i) who has attained the age of 13,

3 or

4 ‘‘(ii) who is under the age of 13 but

5 has a physical or mental impairment which

6 results in the individual being incapable of

7 caring for himself,

8 during any period when such individual regu9 larly spends at least 8 hours each day in the

10 taxpayer’s household, or

11 ‘‘(B) care (for not more than 14 days dur12 ing the calendar year) of a qualifying individual

13 described in subparagraph (A) during any pe14 riod during which the individual does not regu15 larly spend at least 8 hours each day in the tax16 payer’s household.

17 ‘‘(2) DOLLAR LIMIT.—The amount of the res18 pite care expenses incurred during any taxable year

19 which may be taken into account under subsection

20 (a) shall not exceed—

21 ‘‘(A) $1,200 if such expenses are incurred

22 with respect to only 1 qualifying individual for

23 the taxable year, or
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1 ‘‘(B) $2,400 if such expenses are incurred

2 for 2 or more qualifying individuals for such

3 taxable year.

4 ‘‘(d) QUALIFYING INDIVIDUAL.—For purposes of this

5 section, the term ‘qualifying individual’ means—

6 ‘‘(1) a dependent of the taxpayer who is under

7 the age of 13 and with respect to whom the taxpayer

8 is entitled to a deduction under section 151(e),

9 ‘‘(2) a dependent of the taxpayer who is phys10 ically or mentally incapable of caring for himself, or

11 ‘‘(3) the spouse of the taxpayer, if he is phys12 ically or mentally incapable of caring for himself.

13 ‘‘(e) SPECIAL RULES.—For purposes of this sec14 tion—

15 ‘‘(1) MAINTAINING HOUSEHOLD.—An individ16 ual shall be treated as maintaining a household for

17 any period only if over half the cost of maintaining

18 the household for such period is furnished by such

19 individual (or, if such individual is married during

20 such period, is furnished by such individual and his

21 spouse).

22 ‘‘(2) MARRIED COUPLES MUST FILE JOINT RE23 TURN.—If the taxpayer is married at the close of

24 the taxable year, the credit shall be allowed under
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1 subsection (a) only if the taxpayer and his spouse

2 file a joint return for the taxable year.

3 ‘‘(3) MARITAL STATUS.—An individual legally

4 separated from his spouse under a decree of divorce

5 or of separate maintenance shall not be considered

6 as married.

7 ‘‘(4) CERTAIN MARRIED INDIVIDUALS LIVING

8 APART.—If—

9 ‘‘(A) an individual who is married and who

10 files a separate return—

11 ‘‘(i) maintains as his home a house12 hold which constitutes for more than one13 half of the taxable year the principal place

14 of abode of a qualifying individual, and

15 ‘‘(ii) furnishes over half the cost of

16 maintaining such household during the

17 taxable year, and

18 ‘‘(B) during the last 6 months of such tax19 able year such individual’s spouse is not a mem20 ber of such household,

21 such individual shall not be considered as married.

22 ‘‘(5) SPECIAL DEPENDENCY TEST IN CASE OF

23 DIVORCED PARENTS, ETC.—If—
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1 ‘‘(A) paragraph (2) or (4) of section

2 152(e) applies to any child with respect to any

3 calendar year, and

4 ‘‘(B) such child is under the age of 13 or

5 is physically or mentally incapable of caring for

6 himself,

7 in the case of any taxable year beginning in such

8 calendar year, such child shall be treated as a quali9 fying individual with respect to the custodial parent

10 (within the meaning of section 152(e)(1)), and shall

11 not be treated as a qualifying individual with respect

12 to the noncustodial parent.

13 ‘‘(6) PAYMENTS TO RELATED INDIVIDUALS.—

14 No credit shall be allowed under subsection (a) for

15 any amount paid by the taxpayer to an individual—

16 ‘‘(A) with respect to whom, for the taxable

17 year, a deduction under section 151(e) (relating

18 to deduction for personal exemptions for de19 pendents) is allowable either to the taxpayer or

20 his spouse, or

21 ‘‘(B) who is a child of the taxpayer (within

22 the meaning of section 151(e)(3)) who has not

23 attained the age of 19 at the close of the tax24 able year.
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1 For purposes of this paragraph, the term ‘taxable

2 year’ means the taxable year of the taxpayer in

3 which the service is performed.

4 ‘‘(7) STUDENT.—The term ‘student’ means an

5 individual who during each of 5 calendar months

6 during the taxable year is a full-time student at an

7 educational organization.

8 ‘‘(8) EDUCATIONAL ORGANIZATION.—The term

9 ‘educational organization’ means an educational or10 ganization described in section 170(b)(1)(A)(ii).

11 ‘‘(9) IDENTIFYING INFORMATION REQUIRED

12 WITH RESPECT TO SERVICE PROVIDER.—No credit

13 shall be allowed under subsection (a) for any amount

14 paid to any person unless—

15 ‘‘(A) the name, address, and taxpayer

16 identification number of such person are in17 cluded on the return claiming the credit, or

18 ‘‘(B) if such person is an organization de19 scribed in section 501(c)(3) and exempt from

20 tax under section 501(a), the name and address

21 of such person are included on the return

22 claiming the credit.

23 In the case of a failure to provide the information

24 required under the preceding sentence, the preceding

25 sentence shall not apply if it is shown that the tax-
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1 payer exercised due diligence in attempting to pro2 vide the information so required.

3 ‘‘(f) REGULATIONS.—The Secretary shall prescribe

4 such regulations as may be necessary to carry out the pur5 poses of this section.’’

6 (b) CONFORMING AMENDMENTS.—

7 (1) Section 21 of such Code is hereby repealed.

8 (2) Paragraph (2) of section 129(b) of such

9 Code is amended by striking out ‘‘section 21(d)(2)’’

10 and inserting in lieu thereof ‘‘section 35(b)(3)(B)’’.

11 (3) Subsection (e) of section 213 of such Code

12 is amended by striking out ‘‘section 21’’ and insert13 ing in lieu thereof ‘‘section 35’’.

14 (c) TECHNICAL AMENDMENTS.—

15 (1) The table of sections for subpart C of part

16 IV of subchapter A of chapter 1 of such Code is

17 amended by striking out the item relating to section

18 35 and inserting in lieu thereof the following:

‘‘Sec. 35. Dependent care services.

‘‘Sec. 36. Overpayments of tax.’’

19 (2) The table of sections for subpart A of such

20 part IV is amended by striking out the item relating

21 to section 21.
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1 (d) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1995.

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