April 23, 2026
The high costs of care for children and older adults burden many American families. Caregivers may even be pushed out of the workforce when earning a living depends on care they can’t afford. While research shows that investments in affordable care deliver lasting benefits for families, employers, and the economy, the federal programs that aim to help aren’t always well-designed.
States can help. A new Policy Blueprint by Gabrielle Pepin, “How to Design a State Child and Dependent Care Tax Credit That Works,” explores problems with the existing federal Child and Dependent Care Tax Credit (CDCTC), a tax break meant to help working families pay for care, and outlines a more effective state-level approach.
Key issues include:
- Families that need the most help often receive nothing because the federal credit is not refundable. It can only lower a person’s tax liability, not contribute to a tax refund. Families who earn less than about $30,000—people who include the service workers, retail clerks, and health care aides who keep our economy moving—don't benefit at all.
- The credit is too small to cover a meaningful share of care costs. Although it looks more generous on paper, in practice, the maximum credit a family with one child or adult with care needs can receive is around $1,000. This is a small fraction of the cost of full-time child care or home health care.
- Care isn’t just for kids: disabled adults also need care so their family members can go to work. About 70 percent of older adults will need long-term care, which can cost tens of thousands of dollars annually. While the federal CDCTC covers care for disabled adults, not all state credits do.
How states can design a CDCTC that achieves its intended goals:
- Make the state CDCTC refundable to reach lower-income working families who struggle the most with care costs. Refundability also brings the CDCTC in line with other family-focused credits like the Earned Income Tax Credit.
- Offer a state CDCTC that is big enough to make a difference to family budgets. This has been done before. The American Rescue Plan Act of 2021 expanded the maximum federal CDCTC to $4,000 per qualifying individual, which covered nearly 40% of child care spending for most households with children.
- Extend benefits to families with adult care expenses to help them balance their caregiving responsibilities and their working lives.
As the Policy Blueprint points out, when good child care is affordable, it’s not only parents who benefit. Investments in high-quality child care create lasting social and economic returns, benefiting employers, boosting the economy, and leading to long-term benefits for the next generation.
Dr. Pepin's research explores implications of CDCTC program design and its impacts on care utilization and labor market outcomes. Feel free to explore her publications to learn more about her research.
To learn more, check out the Policy Blueprint at the link below. For more information on how to design an effective state CDCTC, contact Dr. Pepin.
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