1986 is amended by inserting before section 26 the fol-
lowing new section: 
‘‘SEC. 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 tax-
able 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 
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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 al-
lowed to a taxpayer under subpart C shall be in-
creased by the difference of— 
‘‘(A) the credit which would be allowed 
under this section without regard to this sub-
section and the limitation under section 26(a), 
over 
‘‘(B) the taxpayer’s applicable family con-
tribution. 
The amount of the credit allowed under this sub-
section shall not be treated as a credit allowed under 
this subpart and shall reduce the amount of credit 
otherwise allowable under subsection (a) without re-
gard to section 26(a). 
‘‘(2) APPLICABLE
FAMILY
CONTRIBUTION.— 
For purposes of this subsection— 
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‘‘(A) IN GENERAL.—The taxpayer’s appli-
cable 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 ac-
count 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 fol-
lows: 
‘‘(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— 
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‘‘(1) QUALIFYING CHILD.—The term ‘qualifying 
child’ means a dependent of the taxpayer (as defined 
in section 152(a)(1)) who has not attained age 5. 
‘‘(2) HIGH QUALITY CHILD CARE EXPENSES.— 
‘‘(A) IN GENERAL.—The term ‘high qual-
ity child care expenses’ means employment-re-
lated 
expenses 
(as 
defined 
in 
section 
21(b)(2)(A)) for services provided by a high 
quality child care center. 
‘‘(B) HIGH
QUALITY
CHILD
CARE
CEN-
TER.—The term ‘high quality child care center’ 
means any facility, including family child care 
homes, which— 
‘‘(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 fa-
cility is operated for profit), 
‘‘(ii) meets the State licensing require-
ments for providing care to qualified chil-
dren, and 
‘‘(iii) in the case of taxable years be-
ginning more than 5 years after the date 
of the enactment of this section— 
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‘‘(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 con-
sultation with the Secretary, shall by 
regulation prescribe. 
‘‘(C) QUALITY RATING AND IMPROVEMENT 
SYSTEM.—The term ‘quality rating and im-
provement system’ means a system through 
which a State uses a set of progressively higher 
program standards to evaluate the quality of an 
early childhood program and to support pro-
gram improvement. Any such program shall in-
clude the following: 
‘‘(i) Tiered Program Standards with 
multiple rating categories that clearly and 
meaningfully differentiate program quality 
levels. 
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‘‘(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 train-
ing, technical assistance, and financial sup-
port, and facilitating participation in orga-
nizations that foster professional develop-
ment). 
‘‘(iv) Program quality ratings that are 
publically available and a process for vali-
dating the system. 
‘‘(D) HIGH
QUALITY
RATING
REQUIRE-
MENT.— 
‘‘(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 
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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 con-
ducts 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 com-
pensation levels sufficient to recruit 
and retain a qualified and diverse 
child care workforce and allow entry- 
level child care staff to maintain a se-
cure standard of living and meet their 
families’ essential needs, and 
‘‘(II) 
information 
gathered 
through a public hearing to solicit 
input from relevant stakeholders in-
cluding the child care workforce. 
‘‘(3) POVERTY LINE.— 
‘‘(A) IN
GENERAL.—The term ‘poverty 
line’ has the meaning given such term in sec-
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tion 673(2) of the Community Services Block 
Grant Act (42 U.S.C. 9902(2)), including any 
revision required by such section. The poverty 
line determined with respect to taxpayer shall 
be the poverty line for a family of the size in-
volved. 
‘‘(B) FAMILY SIZE.—The family size in-
volved with respect to any taxpayer shall be 
equal to the number of individuals for whom 
the taxpayer is allowed a deduction under sec-
tion 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 pay-
ments of the credit allowed under this sec-
tion, at the election of the taxpayer, di-
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rectly to a high quality child care center 
providing care for a qualifying child of the 
taxpayer. 
‘‘(B) RECONCILIATION OF CREDIT AND AD-
VANCE 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 subpara-
graph (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 subpara-
graph (A)), the tax imposed by this chap-
ter 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 
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child, such increase shall not exceed 
the applicable dollar amount deter-
mined 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 quali-
fying 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.— 
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‘‘(i) IN GENERAL.—In the case of any 
taxable year beginning after 2017, the dol-
lar amounts in subsection (b)(1) shall be 
increased by an amount equal to— 
‘‘(I) such dollar amount, multi-
plied by 
‘‘(II) the cost of living adjust-
ment determined under section 1(f)(3) 
for the calendar year in which the tax-
able year begins determined by sub-
stituting ‘calendar year 2016’ for ‘cal-
endar year 1992’ in subparagraph (B) 
thereof. 
‘‘(ii) 
ROUNDING.—If 
the 
dollar 
amount in subsection (b)(1), after being 
increased under clause (i), is not a mul-
tiple of $100, such amount shall be round-
ed to the next lowest multiple of $100. 
‘‘(2) 
INFORMATION
REQUIREMENTS.—Each 
high quality child care center which receives pay-
ments from the Secretary under paragraph (1) shall 
for each calendar year provide the following informa-
tion to the Secretary and to the taxpayer with re-
spect to the child for which such payments were 
made: 
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‘‘(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 ad-
vance 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 re-
duced 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 PAY-
MENTS TO RELATED INDIVIDUALS.—Rules similar to 
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the rules of paragraphs (2), (3), (4), and (6) of sec-
tion 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,’’ after ‘‘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 re-
lating 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. 
SEC. 3. PORTION OF DEPENDENT CARE CREDIT MADE RE-
FUNDABLE. 
(a) IN GENERAL.—Section 21 of the Internal Rev-
enue Code of 1986 is amended by redesignating subsection 
(f) as subsection (g) and by inserting after subsection (e) 
the following new subsection: 
‘‘(f) PORTION OF CREDIT REFUNDABLE.—The ag-
gregate 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 
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