The recent expansion of the Child and Dependent Care Enhancement Tax Credit in Pennsylvania marks a significant milestone for working families and employers across the state. This legislative change, championed by the Chester County Chamber of Business and Industry (CCCBI) in partnership with over 50 other business organizations, the General Assembly, and Governor Josh Shapiro’s Administration, is a testament to the power of collaborative efforts in addressing vital socio-economic issues.

The Expansion of the Tax Credit

On January 5, 2024, Governor Josh Shapiro held a press conference at the Upper Main Line YMCA in Chester County. His visit highlighted the recent expansion of the Child and Dependent Care Tax Credit, which will benefit over 210,000 Pennsylvania families, including 11,000 families in Chester County. 

The economic impact of childcare costs in Pennsylvania is profound. In 2023, the average cost of childcare ranged from $9,000 to $13,000, consuming over 15% of the median family’s annual income. The state’s economy suffers a loss of $3.47 billion annually in lost earnings, productivity and tax revenue due to the inaccessibility of reliable, consistent childcare.

Laura Manion, President of CCCBI, has been a staunch advocate for accessible and affordable childcare through opinion pieces, testimonies before various committees, joint letters, press conferences, and outreach to decision-makers, emphasizing the critical nature of this issue.

 As a mother and leader in the business community, she has experienced firsthand how these barriers impact the workforce. The expanded tax credit is a monumental win for both employees and employers in the state.

Details of the Tax Credit

The Child and Dependent Care Enhancement Tax Credit in Pennsylvania is based on the federal Child and Dependent Care Tax Credit. To be eligible for the state credit, taxpayers must receive the federal credit. The state credit is now equal to 100 percent of the federal credit, with the maximum credit being $1,050 for one child and $2,100 for two or more children. The credit is refundable, meaning qualified taxpayers will receive the full amount of the credit in a refund after accounting for any tax obligations.

Under the new law, a family with two kids in childcare, who previously received $630, will now be eligible to receive $2,100. This increase in financial support is a significant relief for families and boosts the state’s economy.

Eligibility and Claiming the Credit

To claim the credit on the PA Personal Income Tax Return (PA-40), care expenses must have been incurred for a dependent child under age 13, a spouse incapable of self-care who lived with you for more than half the year, or an individual incapable of self-care who meets certain dependency criteria.

This credit is not just for low-income taxpayers; families earning up to $439,000 are eligible. 

To Apply

When filing the PA Personal Income Tax Return (PA-40), you will need to complete PA Schedule DC, an additional form that allows you to report information related to your dependents and the expenses incurred for their care.

We expect the Department of Revenue to release further details later this month. 

Conclusion

Expanding the Child and Dependent Care Enhancement Tax Credit is a significant step forward in supporting Pennsylvania’s working families and strengthening the state’s economy. It demonstrates the positive outcomes that can be achieved through bipartisan cooperation and dedicated advocacy. For more information on this tax credit, Pennsylvanians can visit the Pennsylvania Department of Revenue’s website here. You can also reach out to your accountant or a member of our team for assistance.