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H.R. 2994House119th Congress (2025-2027)In Committee

Child and Dependent Care Tax Credit Enhancement Act of 2025

Sponsored by Danny K. DavisRep. Danny K. Davis (D-IL)
Introduced April 24, 2025

AI-Generated Summary

Updated November 24, 2025 at 12:59 AM UTC

The Child and Dependent Care Tax Credit Enhancement Act of 2025 rewrites parts of the 1986 Internal Revenue Code to make the child and dependent care credit larger, more generous to higher‑income families, and fully refundable for eligible taxpayers. It raises the credit rate to 50%, expands the expense limits to $8,000 for one child and $16,000 for two or more, and adds inflation indexing. It also ensures married couples filing separately receive the same benefit as joint filers and makes the credit refundable for those who meet a residency test. The changes take effect for tax years starting in 2025.

Key Provisions

  • Increases the credit’s “applicable percentage” to 50% (instead of the current lower rate) and adds a phase‑out that reduces the percentage by 1 point for each $2,000 of AGI over $400,000, but never below zero.
  • Raises the maximum amount of qualifying expenses that can be claimed from $3,000 to $8,000 for one qualifying individual and from $6,000 to $16,000 for two or more qualifying individuals.
  • Provides a special rule for married couples filing separate returns so they receive the same credit they would have gotten if filing jointly, with the total credit capped at the joint‑filing amount.
  • Adds an automatic inflation adjustment that increases the $125,000 income threshold and the new expense limits each year after 2025 based on the cost‑of‑living index.
  • Makes the credit fully refundable for taxpayers (or either spouse on a joint return) who live in the United States more than half the year, treating it as a refundable credit under subpart C.
  • Applies these changes to tax years beginning after December 31, 2024.

Legislative Activity

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HouseIntro Referral Latest Action

Referred to the House Committee on Ways and Means.

Ways and Means Committee

April 24, 2025

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HouseIntro Referral

Introduced in House

April 24, 2025

HouseIntro Referral

Referred to the House Committee on Ways and Means.

Ways and Means Committee

April 24, 2025

Bill Text

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Introduced in HouseIssued April 24, 2025

I

119th CONGRESS

1st Session

H. R. 2994

IN THE HOUSE OF REPRESENTATIVES

April 24, 2025

Mr. Davis of Illinois (for himself, Ms. DelBene, Ms. Sánchez, Mr. Beyer, Ms. Moore of Wisconsin, Ms. Chu, Ms. Sewell, Mr. Boyle of Pennsylvania, Ms. McCollum, Ms. Brownley, Mr. Larson of Connecticut, Ms. Wilson of Florida, Ms. Norton, Mr. Cleaver, Mr. Carson, Mr. Khanna, Mr. Connolly, and Mr. Panetta) 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 enhance the Child and Dependent Care Tax Credit and make the credit fully refundable for certain taxpayers.

1.

Short title

This Act may be cited as the Child and Dependent Care Tax Credit Enhancement Act of 2025.

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 by adding at the end the following new subsection:

(i)

Inflation adjustment

(1)

In general

In the case of a calendar year beginning after 2025, 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 2024 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 made refundable

Section 21(g) of the Internal Revenue Code of 1986 is amended to read as follows:

(g)

Credit made refundable for certain individuals

If the taxpayer (in the case of a joint return, either spouse) has a principal place of abode in the United States (determined as provided in section 32) for more than one-half of the taxable year, the credit allowed under subsection (a) shall be treated as a credit allowed under subpart C (and not allowed under this subpart).

.

(f)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2024.