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Q: 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) /12\ of the amount in effect under
subsection (a)(1) if such subsection applies for the
taxable year, or
''(B) /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 ''/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 ''/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.
A:
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.