Joe Biden expanded the child care tax credit as promised, but only for one year

Child care costs in the United States are the highest among other developed nations. During the 2020 presidential campaign, Joe Biden said he would do something to lower them. 

In 2020, he promised that, if elected, families would "get back as a tax credit as much as half of their spending on child care for children under age 13, up to a total of $8,000 for one child or $16,000 for two or more children."

Biden was referring to the Child and Dependent Care Tax Credit. In 2021, the administration approved, and Congress passed, the American Rescue Plan, a COVID-19 pandemic relief bill that temporarily increased the amount of child care expenses families could claim based on the number of qualifying dependents. The law also increased the percentage of those expenses that families could receive as a tax credit, and made the credit refundable, so families with little or no tax liability could still benefit.  

For the 2021 tax year, families with one child could claim $8,000 in child care expenses, up from $3,000, and a family with two or more children could claim $16,000, up from $6,000.

That year, families could receive up to 50% of their expense amount as a tax credit, as opposed to the pre-American Rescue Plan limit of 35%. So, a one-child family could receive up to $4,000 as a tax credit, and a family with two or more children could receive up to $8,000.

The expansion was not restored amid opposition. The child care credit reverted in 2022 to the previous expense limit of $3,000 for families with one child and $6,000 for families with two or more children.  

In Biden's initial 2021 Build Back Better bill, the administration included a provision that would have significantly expanded funding and eligibility for child care assistance. For young children, parents would have paid no more than 7% of their family income, a provision that would cover nearly all families earning up to $300,000, according to congressional Democrats' calculations. And families who earn 75% or less of their state's median income could send their children to day care for free. Preschool for 3- and 4-year-olds would be free, and eligible parents who need to pay for extended hours could get a subsidy.

The bill passed the House in November 2021 but the provision died in the Senate. The bill that passed both chambers, the 2022 Inflation Reduction Act, didn't address child care costs; it focused mostly on climate change, health care and corporate taxation.

A recent Labor Department analysis found that families spent up to $15,600 per year on full-day care per child in 2022, and that families with infants have faced costs as high as $31,500 annually, depending on where they lived.

This exceeds the U.S. median rent of $15,216 that same year, the report found, with some families spending nearly 30% of their annual income on child care. Overall, child care costs have increased more than 50% over the last 10 years. Although federal programs exist to help eligible parents pay for day care, they're targeted for low-income earners.

Biden promised to expand the child care tax credit up to $8,000. His administration achieved that under the American Rescue Plan — but this was in effect only for 2021. Congress didn't approve other legislative efforts to decrease child care costs. We rate this Compromise.