PACE Act

Key Points

• The bill makes the Child and Dependent Care Tax Credit fully refundable. This is a big deal for lower-income families because it means if the credit is worth more than the taxes they owe, the government sends them the difference as a refund check instead of losing the benefit.
• The maximum credit rate jumps from 35% to 50% of childcare costs, with the floor rising from 20% to 35%. This means working families can get back a much larger share of what they spend on daycare, preschool, or after-school care.
• The tax-free exclusion for employer-provided dependent care assistance rises from $5,000 to $7,500. This lets parents shelter more pre-tax income to pay for childcare through workplace programs, lowering their overall tax bill.
• Both the credit amounts and the employer exclusion get automatic inflation adjustments tied to the cost of living, so the benefits keep pace with rising childcare prices in future years.
• All changes take effect for tax years beginning after December 31, 2025, meaning they would first apply when families file their 2026 taxes. The bill is bipartisan, introduced by Rep. Tenney (R) and Rep. Schneider (D).