21st Century Child Care Investment Act

To amend the Internal Revenue Code of 1986 to provide a high quality child care tax credit, and for other purposes. 1. Short title This Act may be cited as the 21st Century Child Care Investment Act 2. High quality child care tax credit (a) In general Subpart A of part IV of subchapter A of chapter 1 25E. High quality child care credit (a) In general In the case of an individual who elects the application of this section for the taxable year, there shall be allowed as a credit against the tax imposed by this chapter an amount equal to the applicable amount of high quality child care expenses paid by such individual during the taxable year with respect to a qualifying child. (b) Limitation (1) In general The amount of the high quality child care expenses which may be taken into account under subsection (a) with respect to each qualifying child of the taxpayer shall not exceed— (A) $14,000 for each qualifying child who has not attained the age of 3 by the end of the taxable year, and (B) $5,000 for each qualifying child who has attained the age of 3 by the end of the taxable year. (2) Adjusted gross income limitation The dollar limitation under paragraph (1)— (A) shall be zero under subparagraph (A) thereof in the case of a taxpayer whose adjusted gross income for the taxable year exceeds an amount equal to 400 percent of the poverty line, and (B) shall be zero under subparagraph (B) thereof in the case of a taxpayer whose adjusted gross income for the taxable year exceeds an amount equal to 200 percent of the poverty line. (c) Portion of credit refundable (1) In general The aggregate credits allowed to a taxpayer under subpart C shall be increased by the difference of— (A) the credit which would be allowed under this section without regard to this subsection and the limitation under section 26(a), over (B) the taxpayer’s applicable family contribution. The amount of the credit allowed under this subsection shall not be treated as a credit allowed under this subpart and shall reduce the amount of credit otherwise allowable under subsection (a) without regard to section 26(a). (2) Applicable family contribution For purposes of this subsection— (A) In general The taxpayer’s applicable family contribution for a taxable year shall be the sum of the amounts determined under subparagraph (B) with respect to each qualifying child of the taxpayer for which high quality child care expenses are taken into account under this section for the taxable year. (B) Amounts determined The amount with respect to a qualifying child under this subparagraph shall be determined as follows: (i) In the case of a qualifying child who has not attained age 3: If the taxpayer’s adjusted gross income for the taxable year is the following Multiply such adjusted percentage of the poverty line: gross income by: Not more than 133 percent 2 percent More than 133 percent but not more than 150 percent 6 percent More than 150 percent but not more than 200 percent 8 percent More than 200 percent but not more than 250 percent 10 percent More than 250 percent 12 percent. (ii) In the case of a qualifying child who has attained age 3: If the taxpayer’s adjusted gross income for the taxable year is the following Multiply such adjusted percentage of the poverty line: gross income by: Not more than 133 percent 2 percent More than 133 percent but not more than 150 percent 6 percent More than 150 percent but not more than 200 percent 8 percent. (d) Definitions For purposes of this section— (1) Qualifying child The term qualifying child (2) High quality child care expenses (A) In general The term high quality child care expenses (B) High quality child care center The term high quality child care center (i) receives a fee, payment, or grant for providing care for qualified children (other than just children who reside at the facility and regardless of whether such facility is operated for profit), (ii) meets the State licensing requirements for providing care to qualified children, and (iii) in the case of taxable years beginning more than 5 years after the date of the enactment of this section— (I) meets the high quality rating requirements under the quality rating and improvement system of the State within which the care of the qualifying child is provided, or (II) is certified by the Secretary of Health and Human Services under such standards as the Secretary of Health and Human Services, in consultation with the Secretary, shall by regulation prescribe. (C) Quality Rating and Improvement System The term quality rating and improvement system (i) Tiered Program Standards with multiple rating categories that clearly and meaningfully differentiate program quality levels. (ii) Monitoring to evaluate program quality based on the program standards determined by the State. (iii) Support to help programs and the child care workforce meet progressively higher standards (including through training, technical assistance, and financial support, and facilitating participation in organizations that foster professional development). (iv) Program quality ratings that are publically available and a process for validating the system. (D) High quality rating requirement (i) In general A facility shall be treated as meeting the high quality rating requirements of a State’s quality rating and improvement system if the facility is rated in the top tier by a State with a 3-tier rating system or in the top 2 tiers by a State with a 4- or 5-tier rating system. A facility shall not be treated as meeting the requirements of the preceding sentence unless the State’s rating system includes compensation standards updated at least every 3 years under the study required under clause (ii). (ii) Study on the cost of high quality child care A State shall not be treated as having a rating system for purposes of clause (i) unless the State conducts a study on the cost of high quality child care at least once every 3 years to analyze costs associated with delivering high quality child care including— (I) an assessment of the compensation levels sufficient to recruit and retain a qualified and diverse child care workforce and allow entry-level child care staff to maintain a secure standard of living and meet their families’ essential needs, and (II) information gathered through a public hearing to solicit input from relevant stakeholders including the child care workforce. (3) Poverty line (A) In general The term poverty line 42 U.S.C. 9902(2) (B) Family size The family size involved with respect to any taxpayer shall be equal to the number of individuals for whom the taxpayer is allowed a deduction under section 151 (relating to allowance of deduction for personal exemptions) for the taxable year. (e) Special rules (1) Advance payment program (A) In general The Secretary of the Treasury, in consultation with the Secretary of Health and Human Services, shall establish a program— (i) to make advance determinations with respect to the eligibility of individuals for the credit allowed under this section, and (ii) to make monthly advance payments of the credit allowed under this section, at the election of the taxpayer, directly to a high quality child care center providing care for a qualifying child of the taxpayer. (B) Reconciliation of credit and advance payment (i) In general The amount of the credit allowed under this section for any taxable year shall be reduced (but not below zero) by the amount of any advance payment of such credit under subparagraph (A). (ii) Excess advance payments If the advance payments to a taxpayer under subparagraph (A) for a taxable year exceed the credit allowed by this section (determined without regard to subparagraph (A)), the tax imposed by this chapter for the taxable year shall be increased by the amount of such excess. (iii) Limitation on increase (I) In general In the case of a taxpayer whose tax is increased (determined without regard to this clause) for the taxable year under clause (ii) with respect to a qualified child, such increase shall not exceed the applicable dollar amount determined in accordance with the table under subclause (I) in the case of any portion of the credit determined with respect to a qualifying child who has not attained the age of 3 by the end of the taxable year, and in accordance with the table under subclause (II) in the case of any portion of the credit determined with respect to a qualifying child who has attained the age of 3 by the end of the taxable year. (II) Under age 3 The table under this subclause is as follows: If the adjusted gross income (expressed as a percent The applicable dollar of poverty line) is: amount is: Less than 400 percent 600 At least 400 percent but less than 500 percent 1,500 At least 500 percent but less than 600 percent 2,500. (III) Age 3 and 4 The table under this subclause is as follows: If the adjusted gross income (expressed as a percent The applicable dollar of poverty line) is: amount is: Less than 200 percent 600 At least 200 percent but less than 300 percent 1,500 At least 300 percent but less than 400 percent 2,500. (C) Inflation adjustment (i) In general In the case of any taxable year beginning after 2017, the dollar amounts in subsection (b)(1) 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 2016 calendar year 1992 (ii) Rounding If the dollar amount in subsection (b)(1), after being increased under clause (i), is not a multiple of $100, such amount shall be rounded to the next lowest multiple of $100. (2) Information requirements Each high quality child care center which receives payments from the Secretary under paragraph (1) shall for each calendar year provide the following information to the Secretary and to the taxpayer with respect to the child for which such payments were made: (A) The total cost of care for such child for such year (determined without regard to the credit under this section). (B) The aggregate amount of any advance payment of such credit made with respect to such child. (C) The name, address, age, and TIN of the taxpayer and the child. (D) Any information provided to such person necessary to determine eligibility for, and the amount of, such credit. (3) Coordination with other dependent care provisions (A) Dependent care credit No credit shall be allowed under section 21 for any taxable year for which the taxpayer elects the application of this section. (B) Dependent care programs The amount taken into account under subsection (a) with respect to a qualifying child shall be reduced by the aggregate amount excludable from gross income under section 129 for the taxable year with respect to such child. (4) Rules relating to marriage and payments to related individuals Rules similar to the rules of paragraphs (2), (3), (4), and (6) of section 21(e) shall apply for purposes of this section. . (b) Conforming amendment Section 1324(b)(2) of title 31, United States Code, is amended by inserting 25E, 25A, (c) Clerical amendment The table of sections for subpart A of part IV of subchapter A of chapter 1 of such Code is amended by inserting before the item relating to section 26 the following new item: Sec. 25E. High quality child care credit. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2016. 3. Portion of dependent care credit made refundable (a) In general Section 21 (f) Portion of credit refundable The aggregate credits allowed to a taxpayer under subpart C shall be increased by the lesser of— (1) the credit which would be allowed under this section without regard to this subsection and the limitation under section 26(a), or (2) (A) in the case of a taxpayer with 1 qualifying child, $1,050, or (B) in the case of a taxpayer with more than 1 qualifying child, $2,100. The amount of the credit allowed under this subsection shall not be treated as a credit allowed under this subpart and shall reduce the amount of credit otherwise allowable under subsection (a) without regard to section 26(a). . (b) Clerical amendment Section 1324(b)(2) of title 31, United States Code, is amended by inserting 24, 25A, (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2016.

Summary: 21st Century Child Care Investment Act This bill amends the Internal Revenue Code to allow a tax credit for employment-related expenses for services provided by a high quality child care center. The credit applies to taxpayers with adjusted gross incomes below specified levels and is limited to: (1) $14,000 for each qualifying child who is under the age of three by the end of the year; and (2) $5,000 for each qualifying child who has attained the age of three by the end of the year, with adjustments for inflation after 2017. A "qualifying child" is a dependent who is under the age of five. The care must be provided by a facility that: (1) receives a fee, payment, or grant for providing care for children (other than just children who reside at the facility and regardless of whether such facility is operated for profit); and (2) meets state licensing requirements. For taxable years beginning more than five years after enactment of this bill, the facility must also: (1) meet high quality rating requirements under the quality rating and improvement system of the state in which the care is provided, and (2) be certified by the Department of Health and Human Services. A portion of the high quality child care tax credit is refundable, depending on the adjusted gross income of the taxpayer. The Department of the Treasury must establish a program to, at the election of the taxpayer, make monthly advance payments of the credit directly to a high quality child care center. The bill also makes a portion of the dependent care tax credit refundable.