Time to Adjust the Child and Dependent Care Tax Credit for Inflation 

Between 2000, when the credit was last updated, and 2022, child care costs increased 223%, while family incomes did not rise at a comparable pace. Since the maximum expenses are not indexed to inflation, the credit does not meaningfully offset the costs of care (the average credit is between $500 and $600).

The credit has not been meaningfully changed in over two decades. Given how rapidly the costs of child care and living are growing, and the continued impact of inflation, families who can claim the credit are finding its impact less effective.

The underlying credit has effectively remained unchanged since its 2001 expansion that was made permanent in 2012 (see Table 1). In 2001 the average child care costs for a family with one child were approximately $3,500 a year. Families could claim a credit between $600 and $1,050 depending on income against $3,000 of maximum qualified expenses. The CDCTC’s purchasing power is much smaller today . Estimates suggest that, had these expenses been indexed to inflation over the past 22 years, they would be valued at nearly $5,300 (with the maximum credit possible increasing to $1,850 for one child).

Even adjusted for inflation, the CDCTC is not sufficient to help families defray the costs of child care. As shown in Figure 1, the growth in child care costs well outpaced median family income and inflation. In 2023, the average annual price of child care for one child was $11,582, while maximum expenses remain $3,000.

In 2021, the CDCTC was temporarily expanded under the American Rescue Plan Act to help parents weather the social and economic upheaval of the COVID-19 pandemic. Table 2 compares the CDCTC’s design under permanent law and the ARP’s expansion.

Adjustments to the maximum qualifying expenses increased the average credit per family in 2021 to $2,244, helping families who claimed the CDCTC offset a greater portion of their child care expenses. By making the credit fully refundable, lower income families benefitted from the credit.

Leveraging the 2025 Policy Window

Caregiving responsibilities continue to constrain families and the broader economy. A BPC-Artemis poll found that 33% of prime age adults (aged 20-54), are currently out of the labor force because they are caring for a child. Among those adults not looking for work, 72% with a child under the age of 18 said that access to high-quality, affordable child care is important when considering whether to enter or return to the workforce. Moreover, a poll from the First Five Years Fund found that voters (89%) overwhelmingly favor policies that provide additional support for high-quality child care, cutting across party lines, with 76% of voters—Republicans (62%), Independents (74%), and Democrats (92%)—supporting an increase to the CDCTC.

The Tax Cuts and Jobs Act (TCJA) expire at the end of 2025, kicking off tax debates in Congress. This is a critical window of opportunity to advance much-needed reforms that help families afford child care and remain in the workforce. Among other changes, BPC recommends that policymakers make the CDCTC refundable, indexed to inflation, and phased out for higher-income families.

---

[1] The child care index comes from the Bureau of Labor Statistics Consumer Price Index series titled “day care and preschool in U.S. city average, all urban consumers, seasonally adjusted. BLS defines day care and preschool as charges for the care of pre-elementary school children, including pre-K, but does not include short-term occasional child care such as babysitting or nannies. Median family income data from the Census Bureau was used to approximate the rate at which family incomes have also changed over time, allowing the best approximate estimate of households with children compared to median household or personal income data.