PACE Act

To amend the Internal Revenue Code of 1986 to increase and make fully refundable the Child and Dependent Care Tax Credit, to increase the maximum amount excludable from gross income for employer-provided dependent care assistance, and for other purposes. 1. Short title This Act may be cited as the Promoting Affordable Childcare for Everyone Act PACE Act 2. Refundability of Child and Dependent Care Tax Credit (a) In general The Internal Revenue Code of 1986 is amended— (1) by redesignating section 21 as section 36C; and (2) by moving section 36C, as so redesignated, from subpart A of part IV of subchapter A of chapter 1 to the location immediately before section 37 in subpart C of part IV of subchapter A of chapter 1. (b) Technical amendments (1) Paragraph (1) of section 23(f) 21(e) 36C(e) (2) Paragraph (6) of section 35(g) of such Code is amended by striking 21(e) 36C(e) (3) Paragraph (1) of section 36C(a) of such Code (as redesignated by subsection (a)) is amended by striking this chapter this subtitle (4) Subparagraph (C) of section 129(a)(2) of such Code is amended by striking section 21(e) section 36C(e) (5) Paragraph (2) of section 129(b) of such Code is amended by striking section 21(d)(2) section 36C(d)(2) (6) Paragraph (1) of section 129(e) of such Code is amended by striking section 21(b)(2) section 36C(b)(2) (7) Subsection (e) of section 213 of such Code is amended by striking section 21 section 36C (8) Subparagraph (H) of section 6213(g)(2) of such Code is amended by striking section 21 section 36C (9) Subparagraph (L) of section 6213(g)(2) of such Code is amended by inserting 36C, 32, (10) Paragraph (2) of section 1324(b) of title 31, United States Code, is amended by inserting 36C, 36B, (11) The table of sections for subpart C of part IV of subchapter A of chapter 1 Sec. 36C. Expenses for household and dependent care services necessary for gainful employment. . (12) The table of sections for subpart A of part IV of subchapter A of chapter 1 of such Code is amended by striking the item relating to section 21. (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2023. 3. Enhancement of the Child and Dependent Care Tax Credit (a) In general Section 36C (1) in paragraph (2) of subsection (a), by striking 35 percent reduced (but not below 20 percent) 50 percent reduced (but not below 35 percent) (2) by striking subsection (g) and redesignating subsection (f) as subsection (g); and (3) by inserting after subsection (e) the following new subsection: (f) Inflation adjustment (1) In general In the case of any taxable year beginning after 2023, each of the dollar amounts in subsections (a)(2) and (c) shall be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2022 calendar year 2016 (2) Rounding If any increase determined under paragraph (1) is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2023. 4. Increase in exclusion for employer-provided dependent care assistance (a) In general Subparagraph (A) of section 129(a)(2) $5,000 ($2,500 $7,500 (half such dollar amount (b) Inflation adjustment Paragraph (2) of section 129(a) of such Code is amended by striking subparagraph (D) and inserting the following new subparagraph: (D) Inflation adjustment In the case of any taxable year beginning in a calendar year after 2024, the $7,500 amount in subparagraph (A) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2023 calendar year 2016 Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $100. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2023.

Summary: Promoting Affordable Childcare for Everyone Act or the PACE Act This bill modifies the tax credit for expenses for household and dependent care services necessary for gainful employment (known as the Child and Dependent Care Tax Credit) to (1) make the credit refundable, (2) increase the rate for the credit, and (3) require the dollar amounts for such credit to be adjusted for inflation. The bill also increases the amount of employer-provided dependent care assistance which may be excluded from the gross income of an employee and requires the increased exclusion amount to be adjusted for inflation.