I
104TH CONGRESS
2D SESSION
H. R. 4154
To amend the Internal Revenue Code of 1986 to make the dependent care
credit refundable, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 24, 1996
Mrs. MORELLA introduced the following bill; which was referred to the
Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to make
the dependent care credit refundable, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. DEPENDENT CARE TAX CREDIT.
(a) DEPENDENT CARE SERVICES.—Subpart C of
part IV of subchapter A of chapter 1 of the Internal Reve-
nue Code of 1986 (relating to refundable credits) is
amended by redesignating section 35 as section 36 and
by inserting after section 34 the following new section:
‘‘SEC. 35. DEPENDENT CARE SERVICES.
‘‘(a) ALLOWANCE OF CREDIT.—
‘‘(1) IN GENERAL.—In the case of an individual
who maintains a household which includes as a
member 1 or more qualifying individuals, there shall
be allowed as a credit against the tax imposed by
this subtitle for the taxable year an amount equal to
the applicable percentage of the sum of—
‘‘(A) the employment-related expenses paid
by such individual during the taxable year, plus
‘‘(B) the respite care expenses paid by
such individual during the taxable year.
‘‘(2) APPLICABLE PERCENTAGE DEFINED.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the term ‘applicable percentage’
means 50 percent reduced (but not below 20
percent) by 1 percentage point for each full
$1,000 amount by which the taxpayer’s ad-
justed gross income for the taxable year exceeds
$15,000.
‘‘(B) COST-OF-LIVING ADJUSTMENT.—
‘‘(i) IN GENERAL.—In the case of a
taxable year beginning in a calendar year
after 1997, subparagraph (A) shall be ap-
plied by increasing the $15,000 amount
contained therein by the cost-of-living ad-
justment (as defined in section 1(f)(3)) for
such calendar year determined by sub-
stituting ‘‘1996’’ for ‘‘1992’’ in subpara-
graph (B) of section 1(f)(3).
‘‘(ii) ROUNDING.—If any increase de-
termined under clause (i) is not a multiple
of $10, such increase shall be rounded to
the nearest multiple of $10 (or if such in-
crease is a multiple of $15, such increase
shall be increased to the next highest mul-
tiple of $10).
‘‘(b) EMPLOYMENT-RELATED EXPENSES.—For pur-
poses of this section—
‘‘(1) 
DETERMINATION
OF
ELIGIBLE
EX-
PENSES.—
‘‘(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 and shall not include any respite care
expense taken into account under subsection
(a).
‘‘(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 subsection (d)(1), or
‘‘(ii) a qualifying individual (not de-
scribed in subsection (d)(1)) 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 6 in-
dividuals (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).
‘‘(2) 
DOLLAR
LIMIT
ON
AMOUNT
CRED-
ITABLE.—
‘‘(A) IN
GENERAL.—The amount of the
employment-related expenses incurred during
any taxable year which may be taken into ac-
count under subsection (a) shall not exceed—
‘‘(i) $2,400 if there is 1 qualifying in-
dividual with respect to the taxpayer for
such taxable year, or
‘‘(ii) $4,800 if there are 2 or more
qualifying individuals with respect to the
taxpayer for such taxable year.
The amount determined under clause (i) or (ii)
(whichever is applicable) shall be reduced by the
aggregate amount excludable from gross income
under section 129 for the taxable year.
‘‘(B) REDUCTION IN LIMIT FOR AMOUNT
OF RESPITE CARE EXPENSES.—The limitation
of subparagraph (A) shall be reduced by the
amount of the respite care expenses taken into
account by the taxpayer under subsection (a)
for the taxable year.
‘‘(3) EARNED INCOME LIMITATION.—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this paragraph, the amount of the
employment-related expenses incurred during
any taxable year which may be taken into ac-
count under subsection (a) shall not exceed—
‘‘(i) in the case of an individual who
is not married at the close of such year,
such individual’s earned income for such
year, or
‘‘(ii) 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.
‘‘(B) SPECIAL RULE FOR SPOUSE WHO IS
A
STUDENT
OR
INCAPABLE
OF
CARING
FOR
HIMSELF.—In the case of a spouse who is a
student or a qualified individual described in
subsection (d)(3), for purposes of subparagraph
(A), 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—
‘‘(i) $200 if paragraph (2)(A)(i) ap-
plies for the taxable year, or
‘‘(ii) $400 if paragraph (2)(A)(ii) ap-
plies for the taxable year.
In the case of any husband and wife, this sub-
paragraph shall apply with respect to only one
spouse for any one month.
‘‘(c) RESPITE CARE EXPENSES.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘respite care ex-
penses’ means expenses paid (whether or not to en-
able the taxpayer to be gainfully employed) for—
‘‘(A) the care of a qualifying individual—
‘‘(i) who has attained the age of 13,
or
‘‘(ii) who is under the age of 13 but
has a physical or mental impairment which
results in the individual being incapable of
caring for himself,
during any period when such individual regu-
larly spends at least 8 hours each day in the
taxpayer’s household, or
‘‘(B) care (for not more than 14 days dur-
ing the calendar year) of a qualifying individual
described in subparagraph (A) during any pe-
riod during which the individual does not regu-
larly spend at least 8 hours each day in the tax-
payer’s household.
‘‘(2) DOLLAR LIMIT.—The amount of the res-
pite care expenses incurred during any taxable year
which may be taken into account under subsection
(a) shall not exceed—
‘‘(A) $1,200 if such expenses are incurred
with respect to only 1 qualifying individual for
the taxable year, or
‘‘(B) $2,400 if such expenses are incurred
for 2 or more qualifying individuals for such
taxable year.
‘‘(d) QUALIFYING INDIVIDUAL.—For purposes of this
section, the term ‘qualifying individual’ means—
‘‘(1) 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),
‘‘(2) a dependent of the taxpayer who is phys-
ically or mentally incapable of caring for himself, or
‘‘(3) the spouse of the taxpayer, if he is phys-
ically or mentally incapable of caring for himself.
‘‘(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 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 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) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pur-
poses of this section.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 21 of such Code is hereby repealed.
(2) Paragraph (2) of section 129(b) of such
Code is amended by striking ‘‘section 21(d)(2)’’ and
inserting ‘‘section 35(b)(3)(B)’’.
(3) Subsection (e) of section 213 of such Code
is amended by striking ‘‘section 21’’ and inserting
‘‘section 35’’.
(c) TECHNICAL AMENDMENTS.—
(1) The table of sections for subpart C of part
IV of subchapter A of chapter 1 of such Code is
amended by striking the item relating to section 35
and inserting the following:
‘‘Sec. 35. Dependent care services.
‘‘Sec. 36. Overpayments of tax.’’
(2) The table of sections for subpart A of such
part IV 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.
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