Child and Dependent Care Tax Credit Enhancement Act of 2021
Bill: S.271 | Sponsor: Sen. Casey, Robert P., Jr. (D-PA)
Policy area: Taxation

Summary:
Child and Dependent Care Tax Credit Enhancement Act of 2021
This bill modifies the tax credit for employment-related expenses incurred for the care of a taxpayer's dependent to (1) increase to $400,000, the adjusted gross income threshold level above which the credit is incrementally reduced; (2) increase the dollar limits on the allowable amount of the credit; (3) specify rules for married couples filing separate returns; (4) allow an inflation adjustment to the adjusted gross income threshold and the maximum credit amounts, beginning after 2022; and (5) make the credit refundable.

To amend the Internal Revenue Code of 1986 to enhance the Child and 
    Dependent Care Tax Credit and make the credit fully refundable.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Child and Dependent Care Tax Credit 
Enhancement Act of 2021''.

SEC. 2. ENHANCEMENT OF CHILD AND DEPENDENT CARE TAX CREDIT.

    (a) In General.--Paragraph (2) of section 21(a) of the Internal 
Revenue Code of 1986 is amended to read as follows:
            ``(2) Applicable percentage.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the term `applicable percentage' means 50 percent 
                reduced (but not below the phaseout percentage) by 1 
                percentage point for each $2,000 (or fraction thereof) 
                by which the taxpayer's adjusted gross income for the 
                taxable year exceeds $125,000.
                    ``(B) Phaseout percentage.--For purposes of 
                subparagraph (A), the term `phaseout percentage' means 
                20 percent reduced (but not below zero) by 1 percentage 
                point for each $2,000 (or fraction thereof) by which 
                the taxpayer's adjusted gross income for the taxable 
                year exceeds $400,000.''.
    (b) Increase in Dollar Limit on Amount Creditable.--Subsection (c) 
of section 21 of the Internal Revenue Code of 1986 is amended--
            (1) in paragraph (1), by striking ``$3,000'' and inserting 
        ``$8,000''; and
            (2) in paragraph (2), by striking ``$6,000'' and inserting 
        ``$16,000''.
    (c) Special Rule for Married Couples Filing Separate Returns.--
Paragraph (2) of section 21(e) of the Internal Revenue Code of 1986 is 
amended to read as follows:
            ``(2) Married couples filing separate returns.--
                    ``(A) In general.--In the case of married 
                individuals who do not file a joint return for the 
                taxable year--
                            ``(i) the applicable percentage under 
                        subsection (a)(2) and the number of qualifying 
                        individuals and aggregate amount excludable 
                        under section 129 for purposes of subsection 
                        (c) shall be determined with respect to each 
                        such individual as if the individual had filed 
                        a joint return with the individual's spouse, 
                        and
                            ``(ii) the aggregate amount of the credits 
                        allowed under this section for such taxable 
                        year with respect to both spouses shall not 
                        exceed the amount which would have been allowed 
                        under this section if the individuals had filed 
                        a joint return.
                    ``(B) Regulations.--The Secretary shall prescribe 
                such regulations or other guidance as is necessary to 
                carry out the purposes of this subsection.''.
    (d) Adjustment for Inflation.--Section 21 of the Internal Revenue 
Code of 1986 is amended--
            (1) by redesignating subsection (f) as subsection (g); and
            (2) by inserting after subsection (e) the following new 
        subsection:
    ``(f) Inflation Adjustment.--
            ``(1) In general.--In the case of a calendar year beginning 
        after 2022, the $125,000 amount in paragraph (2) of subsection 
        (a) and the dollar amounts in subsection (c) shall each 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 2021' for `calendar year 2016' in 
                subparagraph (A)(ii) thereof.
            ``(2) Rounding.--If any dollar amount, after being 
        increased under paragraph (1), is not a multiple of $100, such 
        dollar amount shall be rounded to the next lowest multiple of 
        $100.''.
    (e) Credit To Be Refundable.--
            (1) In general.--The Internal Revenue Code of 1986 is 
        amended--
                    (A) by redesignating section 21 as section 36C; and
                    (B) by moving section 36C, as so redesignated, from 
                subpart A of part IV of subchapter A of chapter 1 to 
                the location immediately before section 37 in subpart C 
                of part IV of subchapter A of chapter 1.
            (2) Technical amendments.--
                    (A) Paragraph (1) of section 23(f) of the Internal 
                Revenue Code of 1986 is amended by striking ``21(e)'' 
                and inserting ``36C(e)''.
                    (B) Paragraph (6) of section 35(g) of such Code is 
                amended by striking ``21(e)'' and inserting ``36C(e)''.
                    (C) Paragraph (1) of section 36C(a) of such Code 
                (as redesignated by paragraph (1)) is amended by 
                striking ``this chapter'' and inserting ``this 
                subtitle''.
                    (D) Subparagraph (C) of section 129(a)(2) of such 
                Code is amended by striking ``section 21(e)'' and 
                inserting ``section 36C(e)''.
                    (E) Paragraph (2) of section 129(b) of such Code is 
                amended by striking ``section 21(d)(2)'' and inserting 
                ``section 36C(d)(2)''.
                    (F) Paragraph (1) of section 129(e) of such Code is 
                amended by striking ``section 21(b)(2)'' and inserting 
                ``section 36C(b)(2)''.
                    (G) Subsection (e) of section 213 of such Code is 
                amended by striking ``section 21'' and inserting 
                ``section 36C''.
                    (H) Subparagraph (H) of section 6213(g)(2) of such 
                Code is amended by striking ``section 21'' and 
                inserting ``section 36C''.
                    (I) Subparagraph (L) of section 6213(g)(2) of such 
                Code is amended by striking ``section 21, 24, or 32,'' 
                and inserting ``section 24, 32, or 36C,''.
                    (J) Paragraph (2) of section 1324(b) of title 31, 
                United States Code, is amended by inserting ``36C,'' 
                after ``36B,''.
                    (K) The table of sections for subpart C of part IV 
                of subchapter A of chapter 1 of the Internal Revenue 
                Code of 1986 is amended by inserting after the item 
                relating to section 36B the following:

``Sec. 36C. Expenses for household and dependent care services 
                            necessary for gainful employment.''.
                    (L) The table of sections for subpart A of such 
                part IV is amended by striking the item relating to 
                section 21.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2021.
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