SEC. 70401. Enhancement of employer-provided child care credit.
(a) Increase of amount of qualified child care expenditures taken into account.—Section 45F(a)(1) is amended by striking “25 percent” and inserting “40 percent (50 percent in the case of an eligible small business)”.
(b) Increase of maximum credit amount.—Subsection (b) of section 45F is amended to read as follows:
“(b) Dollar limitation.—
“(1) IN GENERAL.—The credit allowable under subsection (a) for any taxable year shall not exceed $500,000 ($600,000 in the case of an eligible small business).
“(2) INFLATION ADJUSTMENT.—In the case of any taxable year beginning after 2026, the $500,000 and $600,000 amounts in paragraph (1) shall each be increased by an amount equal to—
“(A) such dollar amount, multiplied by
“(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘calendar year 2025’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.”.
(c) Eligible small business.—Section 45F(c) is amended by adding at the end the following new paragraph:
“(4) ELIGIBLE SMALL BUSINESS.—The term ‘eligible small business’ means a business that meets the gross receipts test of section 448(c), determined—
“(A) by substituting ‘5-taxable-year’ for ‘3-taxable-year’ in paragraph (1) thereof, and
“(B) by substituting ‘5-year’ for ‘3-year’ in paragraph (3)(A) thereof.”.
(d) Credit allowed for third-party intermediaries.—Section 45F(c)(1)(A)(iii) is amended by inserting “, or under a contract with an intermediate entity that contracts with one or more qualified child care facilities to provide such child care services” before the period at the end.
(e) Treatment of jointly owned or operated child care facility.—Section 45F(c)(2) is amended by adding at the end the following new subparagraph:
“(C) TREATMENT OF JOINTLY OWNED OR OPERATED CHILD CARE FACILITY.—A facility shall not fail to be treated as a qualified child care facility of the taxpayer merely because such facility is jointly owned or operated by the taxpayer and other persons.”.
(f) Regulations and guidance.—Section 45F is amended by adding at the end the following new subsection:
“(g) Regulations and guidance.—The Secretary shall issue such regulations or other guidance as may be necessary to carry out the purposes of this section, including guidance to carry out the purposes of paragraphs (1)(A)(iii) and (2)(C) of subsection (c).”.
(g) Effective date.—The amendments made by this section shall apply to amounts paid or incurred after December 31, 2025.
SEC. 70402. Enhancement of adoption credit.
(a) In general.—Section 23(a) is amended by adding at the end the following new paragraph:
“(4) PORTION OF CREDIT REFUNDABLE.—So much of the credit allowed under paragraph (1) as does not exceed $5,000 shall be treated as a credit allowed under subpart C and not as a credit allowed under this subpart.”.
(b) Adjustments for inflation.—Section 23(h) is amended to read as follows:
“(h) Adjustments for inflation.—
“(1) IN GENERAL.—In the case of a taxable year beginning after December 31, 2002, each of the dollar amounts in paragraphs (3) and (4) of subsection (a) and paragraphs (1) and (2)(A)(i) of subsection (b) shall be increased by an amount equal to—
“(A) such dollar amount, multiplied by
“(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘calendar year 2001’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.
“(2) ROUNDING.—If any amount as increased under paragraph (1) is not a multiple of $10, such amount shall be rounded to the nearest multiple of $10.
“(3) SPECIAL RULE FOR REFUNDABLE PORTION.—In the case of the dollar amount in subsection (a)(4), paragraph (1) shall be applied—
“(A) by substituting ‘2025’ for ‘2002’ in the matter preceding subparagraph (A), and
“(B) by substituting ‘calendar year 2024’ for ‘calendar year 2001’ in subparagraph (B) thereof.”.
(c) Exclusion of refundable portion of credit from carryforward.—Section 23(c)(1) is amended by striking “credit allowable under subsection (a)” and inserting “portion of the credit allowable under subsection (a) which is allowed under this subpart”.
(d) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2024.
SEC. 70403. Recognizing Indian tribal governments for purposes of determining whether a child has special needs for purposes of the adoption credit.
(a) In general.—Section 23(d)(3) is amended—
(1) in subparagraph (A), by inserting “or Indian tribal government” after “a State”, and
(2) in subparagraph (B), by inserting “or Indian tribal government” after “such State”.
(b) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2024.
SEC. 70404. Enhancement of the dependent care assistance program.
(a) In general.—Section 129(a)(2)(A) is amended by striking “$5,000 ($2,500” and inserting “$7,500 ($3,750”.
(b) Effective date.—The amendment made by this section shall apply to taxable years beginning after December 31, 2025.
SEC. 70405. Enhancement of child and dependent care tax credit.
(a) In general.—Paragraph (2) of section 21(a) is amended to read as follows:
“(2) APPLICABLE PERCENTAGE DEFINED.—For purposes of paragraph (1), the term ‘applicable percentage’ means 50 percent—
“(A) reduced (but not below 35 percent) by 1 percentage point for each $2,000 or fraction thereof by which the taxpayer’s adjusted gross income for the taxable year exceeds $15,000, and
“(B) further reduced (but not below 20 percent) by 1 percentage point for each $2,000 ($4,000 in the case of a joint return) or fraction thereof by which the taxpayer’s adjusted gross income for the taxable year exceeds $75,000 ($150,000 in the case of a joint return).”.
(b) Effective date.—The amendment made by this section shall apply to taxable years beginning after December 31, 2025.