How Does the Federal Gov’t Help Fund Childcare?

This content leverages data from USAFacts, a non-profit that visualizes governmental data. You can learn more on its website, Facebook, and Twitter.

The availability and affordability of childcare plays a significant role in the U.S. economy: 39% of families report difficulties finding childcare according to the Dept. of Education, while the Bureau of Labor Statistics estimates as many as 5 million more workers could be in the labor force if there were more incentives for parents to remain in the workforce. Here’s a look at some of the ways the federal government assists working families with the cost of childcare.

How does the government help fund childcare?

Tax Credits: There are several federal tax credits available to households with children, including:

• The Child Tax Credit (CTC), which provides $2,000 for each child in a household and phases out at $200,000 for single-parent households and $400,000 for married-parent households. The CTC can become refundable through the additional child tax credit if the value of the credit exceeds the amount of taxes paid. The tax filer has to earn at least $2,500 per year in taxable income to qualify. (The CTC was increased by the Tax Cuts and Jobs Act for the 2018 tax year.)
• The Child and Dependent Care Tax Credit allows filers to claim a non-refundable tax credit for a percentage of up to $3,000 of expenses for one dependent or $6,000 for two or more dependents. The tax filer has to receive wage income to qualify.
• The Earned Income Tax Credit (EITC) is available to any working tax filer under its income limit and increases for filers with children from $519 for someone with no children, to $3,461 for one child and up to $6,431 for three or more children.

The above chart from USAFacts shows the number of tax returns claiming those credits from 1980-2017. Taken together, these tax credits totaled $119 billion in 2017 (the most recent year of data available).

Vouchers: The federal government provides childcare vouchers for parents who are low-income and either employed or in-school from the Child Care and Development Fund. In 2017, those vouchers went to 796,000 families with 1,316,900 children.

Early Childhood Education: An alternative to daycare for three- to five-year-olds is enrollment in preschool and early childhood education programs. These programs have increased in popularity in recent decades from 26% of three- to five-year-olds in 1970 to 46% in 2017:

Head Start: Another program that’s geared toward children under five years old, Head Start prepares young children for school through early learning programs. While the program’s specifics are variable based on how it’s implemented at the state and local level, 4% of all children under 5 (just under 900,000) were enrolled in Head Start in 2017:

— Eric Revell

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