As part of the American Rescue Plan, President Biden and Democrats in Congress significantly increased the value of the Child and Dependent Care Tax Credit (CDCTC) to help lower- and middle-income families cover child care expenses in the 2021 tax year. By making the full tax credit refundable for the first time, more low-income families benefit from it. The expansion also significantly increased the credit amount, lowering costs for more families.
According to estimates from the Joint Economic Committee, more than 9.1 million families were eligible for the expanded Child and Dependent Care Tax Credit in 2021 and could claim the credit as part of their tax return. Before the expansion, just 6.5 million families claimed the credit.
The expansion also greatly increased the size of the credit. Nationally, families were eligible for an average credit of $2,244, reimbursing 39% of child care expenses thanks to the Rescue Plan. In contrast, the average credit claimed in 2019 was only $587. The average credit amount varied significantly by state due to the wide range of child care costs nationwide and varying income distributions. The Joint Economic Committee estimated for each state the number of eligible families, the average credit amount and the average share of families’ child care expenses reimbursed thanks to the expanded tax credit.
