NJ Expands its Child Care Tax Credit, Though for 2021 Only
TRENTON – New Jersey families with incomes up to $150,000 can benefit from an expanded tax credit defraying some of the cost of child care expenses this year, under a law enacted Friday.
The state’s child and dependent care tax credit was created in 2018, but it’s been available only to families with incomes under $60,000. Under a bill unanimously passed Thursday and signed into law Friday, it will be temporarily expanded – though for the 2021 tax year, only.
Assemblywoman Gabriela Mosquera, D-Gloucester, said changes to the benefit can help parents transitioning back to work.
“Issues with our child care facilities have been going on for decades, and now with the pandemic it’s just exacerbated the situation,” Mosquera said. “And it brought it to the forefront how childcare is very essential to the economy.”
The expansion is expected to provide the benefit to an additional 80,000 families, more than double the number claiming it in prior years. Caps on employment-related expenses paid by the taxpayers are being removed, and the tax credit also becomes refundable, meaning a family receives a refund if the amount is larger than their tax bill.
“It’s about the working families of the men and women of the state of New Jersey that we have to help, bottom line,” Mosquera said.
The bill was supported across the political spectrum.
“Tax credits for families will help them afford access to this care and help the businesses stay afloat moving forward,” said Alexis Bailey, director of government affairs, New Jersey Business & Industry Association
But both Bailey and senior policy analyst Peter Chen of New Jersey Policy Perspective said it’s too bad the expansion applies only in 2021, then expires.
“Child care expenses are not going away,” Chen said. “They are not a one-time expense for families. They will continue to be a drag on the economy if we don’t have a more robust system to fund child care.”
The changes were first proposed in February by Gov. Phil Murphy, who estimated the cost to the state at $17 million. But changes to the federal child-care tax credit through the American Rescue Plan could push the value of the state’s expansion beyond $76 million.
The credits had been capped at $500 a year per child or adult dependent, limited to $1,000 a year per family.
The amount of the New Jersey tax credit is a percentage of a taxpayer’s federal child and dependent care credit. The credit is 50% of the federal credit for those with incomes up to $20,000; 40% for incomes of $20,000 to $30,000; 30% for incomes of $30,000 to $40,000; 20% for incomes of $40,000 to $50,000; and 10% for incomes of $50,000 to $60,000.
For the 2021 tax year, the credit is 50% of the federal credit for those with incomes up to $30,000; 40% for incomes of $30,000 to $60,000; 30% for incomes of $60,000 to $90,000; 20% for incomes of $90,000 to $120,000; and 10% for incomes of $120,000 to $150,000.
For 2021, the federal credit was expanded to $4,000 for one person or $8,000 for two or more people.