State Tax Credits for Child Care

High costs related to child care can present a substan-tial barrier to work for low-income parents. Federal and state governments provide assistance to alleviate that barrier through the tax system by offering credits and deductions for child-care expenses. The main source of aid from the federal income tax system is the child and dependent care tax credit (CDCTC). For families with one child and adjusted gross income below $15,000, in theory the credit offsets up to 35 percent of expenses for the first $3,000 of child-care expenses ($6,000 for families with more than one child). The credit phases out as AGI increases, until it is worth 20 percent for families with AGI greater than $43,000. Because the federal CDCTC is nonrefundable, its benefits flow mainly to middle- and high-income families (see this column, Tax Notes, Oct. 27,