Maine’s Child Care Tax Credit

As April 15th comes and goes, many of us are thinking about taxes. Maine is in the middle of an important discussion about how we structure our tax system. One piece of the system for families is Maine’s child care tax credit.

The cost of child care is a huge part of the budget for young families. In Maine, the average cost of center-based child care for an infant was $9,360 in 2012, and the average cost of center-based care for a four-year-old was $8,320.[1] In comparison, average tuition and fees at a Maine public university was $9,471.[2] Needless to say, these amounts can consume a large portion of working families’ budgets. Yet without child care, families will have difficulty entering or remaining in the workforce. We also know that 69% of children under the age of six have both parents in the workforce.[3] As a result, families are caught in a bind: finding the financial resources to pay for the child care necessary for them to earn a living.

The current Maine Child Care Credit is based on the federal Child and Dependent Care (CADC) Tax Credit. It is worth 25% of the federal CADC Credit after it has been limited by the claimant’s federal tax liability. If the Maine credit is claimed for higher-quality child care services, it is worth 50% of the CADC Credit (limited by federal tax liability). The Maine credit is refundable, up to $500.

Unfortunately, Maine’s current child care tax system doesn’t bring much benefit for many working families, particularly those on the lower end of the income scale. First, the Maine credit is limited because the federal CADC Credit, upon which it is based, is not refundable. Because the federal credit is not refundable, tax filers with little or no federal income tax liability may not be able to claim it. Even if low-income families claim the federal credit, they may not fully benefit from it because of limited federal tax liability. For example, if a family’s federal credit is worth $800 but its federal tax liability is only $200, the family is able to claim a credit of only $200 on its federal return.

This can significantly limit the benefit that lower-income families receive from the federal CADC Credit (and by extension, from the Maine Child Care Credit). It has been estimated that families with incomes below $30,000 receive just 4% of the tax benefits of the federal CADC Credit, nationwide.[4] Similarly, fewer lower-income Maine residents claim the federal CADC Credit. Currently, about 70 percent of tax filers in Maine who claim and benefit from the federal CDCTC (and presumably the current Maine credit, which is based on the federal credit) have incomes above $50,000,[5] which exceeds the median income in Maine ($48,453).[6] In addition, as the chart below demonstrates, those lower-income Maine families that do claim the federal credit receive fewer benefits, on average, than higher-income families.[7] This is despite the fact that the federal credit is designed to provide a higher percentage of child care expenses to lower-income families.

Income Average amount of federal CADC Credit claimed (2012) Total number of claims (2012)
$10,000-24,999 $366.84 1,960
$25,000-49,999 $523.49 6,130
$50,000-74,999 $533.82 6,210
$75,000-99,999 $563.36 5,350
$100,000-199,999 $539.58 5,760

In addition, the Maine credit offers limited benefits because it is worth only 25 percent of the federal credit (50% for quality child care services). The federal credit itself is worth between 35 and 20 percent of a family’s child care expenses (depending on the family’s federal Adjusted Gross Income), up to a maximum of $3,000 for one child or dependent, or $6,000 for two or more children or dependents. Thus, the Maine credit provides benefits that represent only a fraction of a family’s child care expenses.

When these elements are considered together, it is not surprising that the Maine Child Care Credit only offers limited assistance to Maine working families, especially those who are lower-income. The data suggest that the amounts claimed under the Maine Child Care Credit — while certainly helpful to eligible families — likely make only a small dent in families’ actual child and dependent care costs.[8] The average amount of the federal CADC Credit claimed by Maine families in 2012 was $524.64, which would result in a Maine Child Care Credit of $131.16 ($262.32 if quality care services were used). The average amounts are smaller for lower-income families, as the chart below demonstrates.

   Income Average amount of federal CADC Credit (2012) Maine Credit amount based on avg. fed. credit (25%) Maine Credit amount based on avg. fed. Credit (50% for quality care)
$10,000-24,999 $366.84 $91.71 $183.42
$25,000-49,999 $523.49 $130.87 $261.95
$50,000-74,999 $533.82 $133.46 $266.91
$75,000-99,999 $563.36 $140.84 $281.68
$100,000-199,999 $539.58 $134.90 $269.79

As discussed above, families in Maine may currently claim a credit equal to 25 percent of the federal credit—or if their child is in high-quality care, 50 percent of the federal credit.  Legislation that was recently heard in the Taxation Committee, LD 930, would increase the percentage of the federal credit that may be claimed for purposes of the Maine credit to 100 percent (200, if high-quality care is used). This would quadruple the value of the current Maine Child Care Credit, and offer more meaningful assistance vis-à-vis the average costs of child care in Maine. In addition, it would enable Maine families to take full advantage of the increased percentage by removing the $500 limitation on refundability.

The Governor has also proposed to make changes to the child care tax credit as part of his budget submission. His proposal would increase the credit from 25% of the federal CADC Credit to 50%, after it has been limited by the claimant’s federal tax liability. The Governor would eliminate Maine’s current provision that doubles the percentage if the child care facility is high quality. It would also eliminate part of the tax code that encourages employer-assisted child care.

Maine needs to expand and strengthen child care and early education programs by encouraging parents to select high quality care. Providing an additional tax incentive is one way to help parents financially afford the best care for their children. This is a crucial investment for them and for Maine’s future.

We encourage those of you who care about quality child care to begin discussing the various child care tax proposals with your local representatives. Many of these decisions are likely to be made as a part of the budget negotiations over the next few months.

Read more about Maine’s child care tax credits at the National Women’s Law Center: http://www.nwlc.org/our-blog/lawmakers-maine-aim-help-families-afford-child-care-through-tax-code-improvements


[1] Child Care Aware, Parents and the High Cost of Child Care, 2013 Report, App. 1, http://usa.childcareaware.org/sites/default/files/cost_of_care_2013_103113_0.pdf

[2] Id. at App. 6.

[3] Children Under Age 6 With All Available Parents In Work Force, Annie E. Casey Foundation, KIDS COUNT Data Center, http://datacenter.kidscount.org

[4] Urban Brookings Tax Policy Center, Tax Benefit of the Child and Dependent Care

Tax Credit (CDCTC), Table T13-0262, http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=4039.

[5] See IRS Tax Statistics, SOI Tax Stats, Historic Table 2, available at http://www.irs.gov/uac/SOI-Tax-Stats-Historic-Table-2 (in 2012, of 26, 420 total claims of the federal credit in Maine, 8,090 of them were by tax filers with incomes below $50,000, while the remaining 18,330 were by tax filers with incomes over $50,000, including 6770 claims by tax filers with incomes above $100,000).

[6] See U.S. Census Bureau, State and County Quick Facts, Maine, available at http://quickfacts.census.gov/qfd/states/23000.html.

[7] See IRS Tax Statistics, SOI Tax Stats, Historic Table 2, available at http://www.irs.gov/uac/SOI-Tax-Stats-Historic-Table-2.

[8] See IRS Tax Statistics, SOI Tax Stats, Historic Table 2, available at http://www.irs.gov/uac/SOI-Tax-Stats-Historic-Table-2.


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