Newsflash: Child care is expensive.
In a majority of states, the cost of child care for an infant exceeds the cost of public college tuition. That cost pinches the wallets of all families with young children in paid child care. For low-income families, it’s much more than a pinch—on average, families in poverty who pay for care spend nearly one-third of their income on that care.
Child care costs in Colorado are particularly high relative to median income—on this measure, Colorado ranks among the least affordable. But parents will have help with these costs thanks to new state legislation signed into law last month. These new laws will offer much-needed assistance to low-income families with young children.
First, Colorado just made its child care tax credit refundable for families making less than $25,000 a year. Refundable tax credits are especially important for low-income families, who often don’t benefit from other tax incentives like deductions and non-refundable credits because they earn too little to owe any income tax. Making a tax credit refundable means that if the amount of the tax credit is worth more than the amount of tax a family owes, they can receive the difference as a refund.
Here’s an example from the Colorado Center on Law and Policy that shows how the law will affect a low-income family’s bottom line next tax season.
A single mother who earns $15,000 a year cleaning office buildings has one daughter, age 7. She pays $4,000 per year to send her daughter to an after school program.
Federal Child Care Tax Credit: Mom could claim $3,000 x 35%, or $1,050, but she does not owe income tax because her income is too low, and this tax credit is not refundable. She gets $0.
Colorado Child Care Tax Credit: Mom can claim 50% of the federal credit claimed, but 50% of $0 = $0.
End Result: Mom gets $0 from both the federal and state child care tax credits to help pay for her daughter’s after school care.
Federal Child Care Credit: Same as above, unless Congress changes the federal tax credit to be refundable. She gets $0.
Colorado Child Care Tax Credit: The credit equals 25% of the total expenses of $4,000 ($1,000), except that the total credit is capped at $500 = $500.
End Result: Mom still gets $0 from the federal child care credit, but receives $500 from the state child care tax credit to help cover the cost of her daughter’s after school care.
Second, Colorado improved its Child Care Assistance Program for low-income families in many important ways.
A few key highlights include:
- Increasing the number of families who are eligible for child care assistance by raising the statewide floor at which counties can set their income limit from 130% of poverty ($25,727 for a family of three) to 165% of poverty ($32,654);
- Lowering the copayment for families receiving child care assistance who have incomes below the federal poverty level—$19,790 for a family of three—to a maximum of 1% of their income;
- Providing funding for counties to test solutions to the “cliff effect”—families’ loss of eligibility for any child care assistance when their income grows slightly, just exceeding the income limit;
- Providing child care assistance for parents in workforce training or college classes;
- Allowing families to receive child care assistance to cover consistent, regular care for their children, even when a parent’s work schedule is variable. (A number of other states have adopted child care assistance policies to meet the needs of parents with variable work schedules. This is an especially important issue for low-wage workers, who have little control over work schedules, and often work different shifts every week.)
In another notable step to help more families gain access to high-quality early care and education, the state will provide an additional $17 million in funding to support 5,000 more slots in preschool or full-day kindergarten for at-risk children.
I don’t know about you, but I’ve been itching for a child care victory for working families for a while now. A big thanks to Colorado for making it happen!