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Early Care and Education Consortium Celebrates Historic Child Care Tax Incentives

The Early Care and Education Consortium (ECEC) has expressed its support for Congress's decision to integrate $16 billion in child care tax incentives into the recently passed One Big Beautiful Bill Act (OBBA). This legislative move will significantly benefit working families needing accessible, affordable child care.

ECEC, a pivotal non-profit alliance comprising multi-site and multi-state child care providers, is a powerful advocate for quality early education. Its members span over 7,300 child care centers located in 47 states, the District of Columbia, and Puerto Rico, collectively catering to more than one million children and employing over 180,000 early childhood educators.

The demand for reliable child care is critical for many American families, many of whom face daily challenges due to high costs and limited availability. A striking 74% of mothers and 66% of fathers have reported negatively impacting their work schedules because of child care issues. The repercussions of these challenges translate to a staggering annual loss of $122 billion in productivity across the U.S. economy. ECEC believes that the recent enhancements in tax incentives can mitigate these economic impacts, providing essential support to families in need.

Enhancements to Child and Dependent Care Tax Credit

Notably, the OBBA introduces substantial enhancements to the Child and Dependent Care Tax Credit (CDCTC), which aims to assist lower-income families. The legislation increases the percentage of child care expenses that can be claimed, allowing parents with the most financial constraints to access a credit of up to 50% on their reported child care costs—a rise from the previous 35%. This modification is substantial, with a maximum credit value of $3,000 available for a family with two children, which can cover a significant portion of childcare expenses in numerous states.

These enhancements are expected to positively influence almost 4 million families across the nation, offering them much-needed financial relief.

The OBBA also increases the annual contribution limits for the dependent care assistance program (DCAP) from $5,000 to $7,500, allowing families to set aside more pre-tax income for child care expenditures. This is particularly beneficial for those relying on employer-sponsored flexible spending accounts.

Support for Employers Providing Child Care Benefits

The bill offers more than just individual support; it paves the way for businesses to support their employees better. The OBBA enhances provisions for employer tax credits related to child care obligations under Section 45F. Businesses will now be eligible for a credit of 40% on qualified child care expenses, increasing the maximum credit eligibility from $150,000 to $500,000 for larger businesses ($600,000 for smaller ones). This will encourage more businesses to invest in child care benefits, thereby improving workforce recruitment and retention.

In addition to these specific provisions, ECEC also commends the expansion of the Child Tax Credit that aids in alleviating other child-related expenses.

While the fight for improved child care support continues, the strides made through the OBBA represent a landmark achievement that will empower countless working families across the United States in accessing quality child care services important for their economic stability and their children's well-being.