S. 1421 — Child and Dependent Care Tax Credit Enhancement Act of 2025

This section enhances the child and dependent care tax credit by making the following changes, effective for taxable years beginning after December 31, 2024: (1) revising the applicable percentage to 50 percent (from 35 percent) reduced—but not below the phaseout percentage—by 1 percentage point for each $2,000 (or fraction thereof) of adjusted gross income exceeding $125,000 (from $15,000), where the phaseout percentage is 20 percent reduced—but not below zero—by 1 percentage point for each $2,000 (or fraction thereof) exceeding $400,000; (2) increasing the maximum amount of qualifying employment-related expenses to $8,000 for one qualifying individual and $16,000 for two or more (from $3,000 and $6,000); (3) revising the rule for married individuals filing separate returns to calculate each spouse's applicable percentage and expense limits as if filing jointly, with the aggregate credit for both spouses not to exceed the joint return amount; (4) requiring inflation adjustment, after 2025, of the $125,000 threshold and expense limits using chained CPI (base year 2024), rounded down to the nearest $100; and (5) making the credit refundable (i.e., treated as under subpart C) for taxpayers (either spouse on a joint return) maintaining a principal place of abode in the United States for more than half the taxable year.