To amend the Internal Revenue Code of 1986 to allow a deduction for expenses paid for household and dependent care services necessary for gainful employment and to increase, and make refundable, the credit for such expenses.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Child Care Affordability Act of 
2007''.

SEC. 2. ALLOWANCE OF DEDUCTION FOR EXPENSES FOR HOUSEHOLD AND DEPENDENT 
              CARE SERVICES NECESSARY FOR GAINFUL EMPLOYMENT.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions for individuals) is amended by redesignating section 224 as 
section 225 and inserting after section 223 the following new section:

``SEC. 224. EXPENSES FOR HOUSEHOLD AND DEPENDENT CARE SERVICES 
              NECESSARY FOR GAINFUL EMPLOYMENT.

    ``(a) Allowance of Deduction.--In the case of an individual for 
whom there are 1 or more qualifying individuals with respect to such 
individual, there shall be allowed as a deduction an amount equal to so 
much of the employment-related expenses paid by such individual during 
the taxable year as do not exceed--
            ``(1) $13,000 if there is 1 qualifying individual with 
        respect to the taxpayer for such taxable year, or
            ``(2) 200 percent of the dollar amount in effect under 
        paragraph (1) for the taxable year if there are 2 or more 
        qualifying individuals with respect to the taxpayer for such 
        taxable year.
    ``(b) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualifying individual; employment-related expenses.--
        The terms `qualifying individual' and `employment-related 
        expenses' shall have the respective meanings given such terms 
        by section 21(b).
            ``(2) Denial of double benefit.--
                    ``(A) Coordination with dependent care assistance 
                program.--The amount of employment-related expenses 
                otherwise taken into account under subsection (a) shall 
                be reduced by the aggregate amount excludable from 
                gross income under section 129 for the taxable year.
                    ``(B) Coordination with credit for employment-
                related expenses.--No deduction shall be allowed under 
                subsection (a) for a taxable year with respect to the 
                employment-related expenses of the taxpayer if the 
                taxpayer elects to have section 21 apply for such 
                taxable year.
            ``(3) 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 section 
        21(b)(1)(C), for purposes of paragraph (4), 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) \1/12\ of the amount in effect under 
                subsection (a)(1) if such subsection applies for the 
                taxable year, or
                    ``(B) \1/12\ of the amount in effect under 
                subsection (a)(2) if such subsection 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.
            ``(4) Other special rules.--Rules similar to the rules of 
        subsections (d)(1) and (e) of section 21 shall apply for 
        purposes of this section.
    ``(c) Inflation Adjustment.--
            ``(1) In general.--In the case of a taxable year beginning 
        after 2008, the dollar amount under subsection (a)(1) 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 2007' for `calendar year 1992' in 
                subparagraph (B) thereof.
            ``(2) Rounding.--If any amount as adjusted under 
        subparagraph (A) is not a multiple of $100, such amount shall 
        be rounded to the next lowest multiple of $100.
    ``(d) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section.''.
    (b) Deductible Whether or Not Taxpayer Itemizes.--Subsection (a) of 
section 62 of such Code (defining adjusted gross income) is amended by 
inserting after paragraph (21) the following new paragraph:
            ``(22) Expenses for household and dependent care services 
        necessary for gainful employment.--The deduction allowed by 
        section 224.''.
    (c) Conforming Amendments.--
            (1) Subsection (e) of section 213 is amended by inserting 
        ``or deduction under section 224'' after ``section 21''.
            (2) Paragraph (2) of section 6213(g) is amended--
                    (A) by striking ``or'' in subparagraph (H) and 
                inserting ``, section 224 (relating to expenses for 
                household and dependent care services necessary for 
                gainful employment), or'', and
                    (B) by striking ``or 32'' in subparagraph (L) and 
                inserting ``32, or 224''.
    (d) Effective Date.--The amendments made by this section shall 
apply to expenses paid in taxable years beginning after the date of the 
enactment of this Act.

SEC. 3. MODIFICATION OF CREDIT FOR EXPENSES FOR HOUSEHOLD AND DEPENDENT 
              CARE SERVICES NECESSARY FOR GAINFUL EMPLOYMENT.

    (a) In General.--
            (1) Increase in credit limitation.--Subsection (c) of 
        section 21 of the Internal Revenue Code of 1986 (relating to 
        dollar limit on amount creditable) is amended--
                    (A) by striking ``$3,000'' in paragraph (1) and 
                inserting ``13,000'', and
                    (B) by striking ``$6,000'' in paragraph (2) and 
                inserting ``200 percent of the dollar amount in effect 
                under paragraph (1) for the taxable year''.
            (2) Inflation adjustment.--Section 21 of such Code is 
        amended by redesignating subsection (f) as subsection (g) and 
        inserting after subsection (e) the following new subsection:
    ``(f) Inflation Adjustment.--
            ``(1) In general.--In the case of a taxable year beginning 
        after 2008, the dollar amount under subsection (a)(1) 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 2007' for `calendar year 1992' in 
                subparagraph (B) thereof.
            ``(2) Rounding.--If any amount as adjusted under 
        subparagraph (A) is not a multiple of $100, such amount shall 
        be rounded to the next lowest multiple of $100.''.
            (3) Increase in deemed earned income amounts.--Paragraph 
        (2) of section 21(d) of such Code (relating to special rules 
        for spouse who is a student or incapable of caring for himself) 
        is amended--
                    (A) by striking ``$250 if subsection (c)(1)'' in 
                subparagraph (A) and inserting ``\1/12\ of the amount 
                in effect under subsection (c)(1) if such subsection'', 
                and
                    (B) by striking ``$500 if subsection (c)(2)'' in 
                subparagraph (B) and inserting ``\1/12\ of the amount 
                in effect under subsection (c)(2) if such subsection''.
    (b) Coordination With Deduction for Employment-Related Expenses.--
Subsection (e) of section 21 of such Code (relating to special rules) 
is amended by adding at the end the following new paragraph:
            ``(11) Election to have section apply.--This section shall 
        apply to any taxpayer for any taxable year only if such 
        taxpayer elects (at such time and in such manner as the 
        Secretary may by regulations prescribe) to have this section 
        apply for such taxable year.''.
    (c) Credit Made Refundable.--
            (1) Credit moved to subpart relating to refundable 
        credits.--Such Code is amended--
                    (A) by redesignating section 36 as section 37,
                    (B) by redesignating section 21, as amended by this 
                section, as section 36, and
                    (C) by moving section 36 (as so redesignated) from 
                subpart A of part IV of subchapter A of chapter 1 to 
                the location immediately before section 37 (as so 
                redesignated) in subpart C of part IV of subchapter A 
                of chapter 1.
    (d) Conforming Amendments.--
            (1) Section 224(b) of such Code, as added by this Act, is 
        amended--
                    (A) by striking ``section 21(b)'' in paragraph (1) 
                and inserting ``section 36(b)'',
                    (B) by striking ``section 21'' in paragraph (2)(B) 
                and inserting ``section 36'',
                    (C) by striking ``section 21(b)(1)(C)'' in 
                paragraph (3) and inserting ``section 36(b)(1)(C)'', 
                and
                    (D) by striking ``section 21'' in paragraph (4) and 
                inserting ``section 36''.
            (2) Subsection (e) of section 213 of such Code is amended 
        by striking ``section 21'' and inserting ``section 36''.
            (3) Paragraph (2) of section 6213(g) of such Code is 
        amended by striking ``section 21'' each place it appears and 
        inserting ``section 36''.
            (4) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting ``, 36,'' after ``section 
        35''.
            (5) 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.
            (6) The table of sections for subpart C of part IV of 
        subchaper A of chapter 1 of such Code is amended by striking 
        the item relating to section 36 and inserting the following new 
        items:

``Sec. 36. Expenses for household and dependent care services necessary 
                            for gainful employment.
``Sec. 37. Overpayments of tax.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to expenses paid in taxable years beginning after the date of the 
enactment of this Act.

Summary: Child Care Affordability Act of 2007 - Amends the Internal Revenue Code to: (1) allow a tax deduction for expenses paid for household and dependent care services necessary for gainful employment; (2) increase the dollar limitation on the tax credit for such expenses; (3) provide for an inflation adjustment after 2008 to the dollar amounts for such tax deduction and tax credit; and (4) make such tax credit refundable.