Financing Child Care in the United States - Ewing Marion Kauffman ...

GENERATING PUBLIC REVENUE TAX CREDITS, DEDUCTIONS AND EXEMPTIONS
CHILD AND DEPENDENT CARE
CREDIT (NEW YORK)
DESCRIPTION
New York allows families with employment–related child
care expenses to claim a refundable child and dependent
care tax credit (CDCTC) against state personal income
taxes owed. Compared to other state CDCTCs, the credit
is unusually generous. While favoring lower–income
families, it is available to all taxpayers, regardless of
income. Thus, all families with qualifying expenses can
receive some credit. The maximum credit a family may
receive is $720 for one child or dependent and $1,440
for two or more children or dependents.
WHEN ESTABLISHED
New York’s CDCTC was established in 1977. It has since
been amended many times, in 1998 and again in 2000,
when it was increased to its present level.
ANNUAL AMOUNT
In tax year 1996 (the most recent year for which
information is available), the CDCTC was claimed on
271,000 New York resident tax returns, for a total of
approximately $28 million. The New York credit available
in 1996, however, was much less generous than that
which is available today.
SERVICES FUNDED
New York’s credit, like most state CDCTCs, allows claims
for the same range of child care services as the federal
credit. The federal credit covers employment-related
child care, whether provided in–home or out–of–home,
including care provided by child care centers, nursery
schools, family child care homes, nannies, relatives over
the age of 18 (other than a spouse or dependent), and
day camps (but not overnight camps).
Because the New York CDCTC is calculated as a
percentage of the federal CDCTC, New York’s credit is
subject to the same expense limits as the federal credit —
$2,400 for one child or dependent and $4,800 for two or
more children or dependents.
HOW FUNDS DISTRIBUTED
The New York credit is claimed on the taxpayer’s annual
income tax return, based on child or dependent care
expenses that were paid throughout the year. Taxpayers
who can predict their expenses may choose to adjust
their state withholding amounts to account for the credit,
thus receiving its benefits throughout the year.
POPULATION SERVED
New York has not limited its tax credit to lower–income
or middle–income families. All families with qualifying
expenses may take the credit, regardless of their income.
(This is in contrast to the seven states that cap their child
care tax provisions by imposing an upper income limit on
taxpayers who may claim it, ranging from a low of
$21,424 in New Mexico to a high of $60,000 in
Colorado.) Most states, like New York, follow the federal
model and allow families at all income levels to claim the
credit.
However, New York’s credit is targeted to give the
greatest benefit to lower–income families. For tax year
2000, families with New York adjusted gross incomes
(AGIs) below $25,000 are eligible for the maximum state
credit, equal to 110 percent of the federal credit for
which the family is eligible, for a maximum credit amount
of $792 for one child or dependent and $1,584 for two
or more children or dependents. Families who cannot
claim the federal credit for which they are eligible
because of their limited federal tax liability are still eligible
for the state credit. Families with incomes of more than
$65,000 may claim a state credit equal to 20 percent of
the federal credit for which they are eligible, for a
maximum credit amount of $96 for one child or
dependent and $192 for two or more children or
dependents. Families with incomes between $25,000
and $40,000 are eligible for a state credit between 100
percent and 110 percent of their federal credit. Families
with incomes between $40,000 and $65,000 are eligible
for 100 percent of the federal credit for which they are
eligible. Families with incomes between $50,000 and
$65,000 are eligible for a state credit between 100
percent and 20 percent, with the percentage declining as
income increases. New York’s credit is refundable, and is
thus available even to low–income families who owe no
taxes.
Like nearly all other states with child and dependent care
tax provisions, New York’s CDCTC applies to care for
children under age 13, the same age limit as the federal
credit. Like other states that follow the model of the
federal credit, New York’s provision also applies to care
for a spouse or dependent (including a child 13 and
older) unable to provide self–care.
STRATEGIC CONSIDERATIONS
• Generally, the justification for state child care tax
provisions is similar to that for the federal credit. Tax
provisions recognize that families who incur
employment–related child care expenses do not have
the same ability to pay taxes as do families at the
same income level without such expenses, and adjust
tax liability accordingly.
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