Details of Public Law 117-2, section 9631 , Refundability and Enhancement of Child and Dependent Care Tax Credit

The section temporarily expands the child and dependent care tax credit for taxable years beginning after 12/31/2020, and before 1/1/2022. The section makes the credit refundable for a taxpayer who has a principal place of abode in the United States for more than one half of the taxable year. In the case of a joint return, refundability is allowed if at least one spouse satisfies the principal place of abode requirement.

In addition, the section increases the maximum credit rate from 35 percent to 50 percent and increases the amount at which the maximum credit rate begins to phase out from $15,000 to $125,000. The limitation on employment-related child and dependent care expenses is increased to $8,000 from $3,000 in the case of one qualifying individual and to $16,000 from $6,000 if there are two or more qualifying individuals.

The section applies a two-part phase out to the 50-percent credit rate. Under the first part, the 50-percent credit rate is reduced, but not below 20 percent, by one percentage point for each $2,000 (or fraction thereof) of adjusted gross income (AGI) above $125,000. Under the second part, the 20 percent credit rate "floor" is reduced, but not below zero, by one percentage point for each $2,000 (or fraction thereof) of AGI above $400,000.

This section also authorizes the Secretary of the Treasury to make payments to US possessions with mirror code tax systems due to the application of this section relating to the child and dependent care credit. For US possessions that do not have a mirror code tax system, the section authorizes payments for the child and dependent care credit benefits that would result due to application of this section if such US possession had a mirror code tax system.

California conforms to the child and dependent care credit as of the specified date of 1/1/2015 with modifications, but does not conform to the federal section that makes the credit refundable, increases the maximum credit rate, increases the phase out amount, and increases the credit limitation amounts for taxable years that begin during 2021.

The California child and dependent care credit is allowed based on a percentage of the taxpayer’s federal child and dependent care tax credit. The percentages are:

California adjusted gross income Credit percentage $40,000 or less 50% Over $40,000 but not over $70,000 43% Over $70,000 but not over $100,000 34% Over $100,000 0%

The credit is limited to household services and care provided within California.

California does not have child and dependent care credit payment sections relating to US possessions.