‘‘(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 ‘employ-
ment-related expenses’ means amounts paid for
the following expenses, but only if such ex-
penses 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 quali-
fying 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 in-
curred for the care of—
‘‘(i) a qualifying individual described
in paragraph (1)(A), or
‘‘(ii) a qualifying individual (not de-
scribed in paragraph (1)(A)) who regularly
spends at least 8 hours each day in the
taxpayer’s household.
‘‘(C) DEPENDENT
CARE
CENTERS.—Em-
ployment-related expenses described in subpara-
graph (A) which are incurred for services pro-
vided outside the taxpayer’s household by a de-
pendent care center (as defined in subpara-
graph (D)) shall be taken into account only if—
‘‘(i) such center complies with all ap-
plicable laws and regulations of a State or
unit of local government, and
‘‘(ii) the requirements of subpara-
graph (B) are met.
‘‘(D) DEPENDENT
CARE
CENTER
DE-
FINED.—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 re-
side at the facility), and
‘‘(ii) receives a fee, payment, or grant
for providing services for any of the indi-
viduals (regardless of whether such facility
is operated for profit).
‘‘(c) DOLLAR LIMIT ON AMOUNT CREDITABLE.—The
amount of the employment-related expenses incurred dur-
ing 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 tax-
able 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 pro-
vided in this subsection, the amount of the employ-
ment-related expenses incurred during any taxable
year which may be taken into account under sub-
section (a) shall not exceed—
‘‘(A) in the case of an individual who is
not married at the close of such year, such indi-
vidual’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
HIM-
SELF.—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 sec-
tion—
‘‘(1) MAINTAINING
HOUSEHOLD.—An individ-
ual 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 RE-
TURN.—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 house-
hold 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 tax-
able year such individual’s spouse is not a mem-
ber 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 quali-
fying 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 de-
pendents) 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 tax-
able 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 or-
ganization 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 in-
cluded on the return claiming the credit, or
‘‘(B) if such person is an organization de-
scribed 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 tax-
payer exercised due diligence in attempting to pro-
vide 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 tax-
payer’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 pur-
poses of this section.’’
(b) CONFORMING AMENDMENTS.—
(1) REPEAL
OF
SECTION
21.—Subpart A of
part IV of subchapter A chapter 1 of such Code (re-
lating 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 sec-
tion 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.
Æ