Promoting Affordable Childcare for Everyone Act (PACE Act)

The Promoting Affordable Childcare for Everyone (PACE) Act would enact several changes to make both tax policies immediately more generous and modify them to reflect the changing economic landscape by requiring an annual inflation adjustments that will provide families with greater spending power when seeking care for their children including school-age children up to the age of 13.

More specifically the Promoting Affordable Childcare for Everyone Actwould:

1. Modernize the Child and Dependent Care Tax Credit by:

• Making the credit refundable in order to expand the credit’s reach to low-income working parents.
• Increase the value of the credit by raising the credit rate for families of all income levels and creating a new top credit rate of 50 percent that phases down to 35 percent for higher-income families in order to expand the reach of the credit and put more money back into the pockets of working parents.
• Indexing the credit to inflation to ensure the value of the credit will not be eroded over time by rising childcare costs, but instead, will remain at a sufficient level to help make costs more affordable.

1. Enhance Dependent Care Flexible Spend Accounts (FSAs) by:

• Increasing the amount of pre-tax dollars families can put into these accounts from $5,000 to $7,500. This exclusion from gross income allows families to save money on income and FICA taxes, and the PACE Act’s increase means those savings will go even further than current law’s.
• Indexing the new cap to inflation so FSAs can keep pace with the cost of childcare. Because the current $5,000 cap is not indexed to inflation, families are falling further and further behind the rising cost of care.  By raising the cap to $7,500, and indexing that amount to inflation, the PACE Act ensures FSAs are reliably updated to keep steady a parent’s purchasing power for their child’s care.