Section 1 Short title
This Act may be cited as the “Promoting Affordable Childcare for Everyone Act” or the “PACE Act”.
Promoting Affordable Childcare for Everyone Act
A BILL
To amend the Internal Revenue Code of 1986 to increase and make fully refundable the Child and Dependent Care Tax Credit, to increase the maximum amount excludable from gross income for employer-provided dependent care assistance, and for other purposes.
Sec. 2 Refundability of Child and Dependent Care Tax Credit
In general— The Internal Revenue Code of 1986 is amended—
by redesignating section 21 as section 36C; and
by moving section 36C, as so redesignated, from subpart A of part IV of subchapter A of chapter 1 to the location immediately before section 37 in subpart C of part IV of subchapter A of chapter 1.
Technical amendments—
Paragraph (1) of section 23(f) of the Internal Revenue Code of 1986 is amended by striking “21(e)” and inserting “36C(e)”.
Paragraph (6) of section 35(g) of such Code is amended by striking “21(e)” and inserting “36C(e)”.
Paragraph (1) of section 36C(a) of such Code (as redesignated by subsection (a)) is amended by striking “this chapter” and inserting “this subtitle”.
Subparagraph (C) of section 129(a)(2) of such Code is amended by striking “section 21(e)” and inserting “section 36C(e)”.
Paragraph (2) of section 129(b) of such Code is amended by striking “section 21(d)(2)” and inserting “section 36C(d)(2)”.
Paragraph (1) of section 129(e) of such Code is amended by striking “section 21(b)(2)” and inserting “section 36C(b)(2)”.
Subsection (e) of section 213 of such Code is amended by striking “section 21” and inserting “section 36C”.
Subparagraph (H) of section 6213(g)(2) of such Code is amended by striking “section 21” and inserting “section 36C”.
Subparagraph (L) of section 6213(g)(2) of such Code is amended by inserting “36C,” after “32,”.
Paragraph (2) of section 1324(b) of title 31, United States Code, is amended by inserting “36C,” after “36B,”.
The table of sections for subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 36B the following:
The table of sections for subpart A of part IV of subchapter A of chapter 1 of such Code is amended by striking the item relating to section 21.
Effective date— The amendments made by this section shall apply to taxable years beginning after December 31, 2025.
Sec. 3 Enhancement of the Child and Dependent Care Tax Credit
In general— Section 36C of the Internal Revenue Code of 1986, as redesignated by section 2 of this Act, is amended—
in paragraph (2) of subsection (a), by striking “35 percent reduced (but not below 20 percent)” and inserting “50 percent reduced (but not below 35 percent)”;
by striking subsection (g) and redesignating subsection (f) as subsection (g); and
by inserting after subsection (e) the following new subsection:
“(f) Inflation adjustment
“(1) In general—In the case of any taxable year beginning after 2025, each of the dollar amounts in subsections (a)(2) and (c) 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 2024” for “calendar year 2016” in subparagraph (A)(ii) thereof.
“(2) Rounding—If any increase determined under paragraph (1) is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50.”
Effective date— The amendments made by this section shall apply to taxable years beginning after December 31, 2025.
Sec. 4 Increase in exclusion for employer-provided dependent care assistance
In general— Subparagraph (A) of section 129(a)(2) of the Internal Revenue Code of 1986 (relating to dependent care assistance programs) is amended by striking “$5,000 ($2,500” and inserting “$7,500 (half such dollar amount”.
Inflation adjustment— Paragraph (2) of section 129(a) of such Code is amended by striking subparagraph (D) and inserting the following new subparagraph:
“(D) Inflation adjustment—In the case of any taxable year beginning in a calendar year after 2026, the $7,500 amount in subparagraph (A) shall be increased by an amount equal to—
“(i) such dollar amount, multiplied by
“(ii) 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.”
Effective date— The amendments made by this section shall apply to taxable years beginning after December 31, 2025.