BILL NUMBER: S8632
SPONSOR: GOUNARDES
 
TITLE OF BILL:
An act to amend the tax law, in relation to the calculation of certain
credits for dependent care services necessary for gainful employment
 
PURPOSE OR GENERAL IDEA OF BILL:
To decouple the New York State child and dependent care credit from its
federal counterpart for all tax years beginning in 2026 and to phase out
the credit for extremely high-income households who can already afford
the cost of care.
 
SUMMARY OF PROVISIONS:
Section one of this bill amends subsection (c ) of section 601 of the
Tax Law to provide that all references to the federal child and depend-
ent care credit (CDCC) in IRC § 21 should be to the version of such
section that existed prior to the enactment of Public Law 119-21, also
known as the One Big Beautiful Bill Act (OBBBA). This section also
removes a series of outdated references to the calculation of the NYS
CDCC that have not been applicable since 1996.
This section also begins phasing out the value of the state-level CDCC
at $500,000 in income, or $1,000,000 for taxpayers who file a joint
return, at a gentle two percent.
Section two of this bill sets the effective date.
 
JUSTIFICATION:
The federal child and dependent care credit (CDCC), found in Section 21
of the Internal Revenue Code, is a benign-sounding yet convoluted and
largely inaccessible tax credit that is meant to offset the cost of
working families' child and dependent care expenses. The CDCC has
historically allowed working parents to claim up to 35% of eligible care
expenses for families making up to $15,000 in income, after which point
it gradually phases down until it reaches 20% of care expenses at
$43,000 in income. 1 Expenses are capped at $3,000 for one qualifying
dependent, defined as a minor under the age of 13 or an older dependent
or spouse with a physical or mental disability, or $6,000 for two or
more dependents. After calculating eligible expenses, the credit is then
capped at $600 for households with one dependent, or $1,200 for house-
holds with two or more dependents.
New York State calculates its own CDCC by starting with the value of the
federal CDCC and then multiplying it by a maximum of 110% for incomes of
less than $25,000, meaning that low-income families are getting a 110%
match of their federal CDCC, to a minimum of 20% for families earning
more than $150,000, meaning that these families get a 20% match.2 New
York's credit also deviates from its federal counterpart by allowing for
higher expense maximums of $7,500 for three dependents, $8,500 for four
dependents, and $9,000 for five or more dependents.3 The state credit is
also fully refundable and may be claimed whether or not a filer claimed
the federal credit.
Despite its noble intentions and full refundability, the CDCC has turned
out to be highly regressive in practice, with no upper income limit,
meaning that six- or seven-figure households are able to claim a state-
level CDCC worth 20% of their federal CDCC no matter how much they make,
so long as they have qualifying dependent care. As the CDCC rises with
the level of expense, and as wealthier families can afford to spend
more, the vast majority of credits in New York flow to families making
more than $100,000, who claimed this credit more than 200,000 times in
2021, while households in every other income category below this level
claimed the credit less than 52,000 times. Furthermore, this credit is
so complicated to claim that an estimated ten percent of households
eligible for the credit actually bother to file for it. In tax year
2023, only 310,000, or 3.3%, of total resident taxpayers in the state
claimed it.4
The 2025 One Big Beautiful Bill Act (OBBBA), which applies to all tax
years starting in 2026, made several notable expansions to the federal
CDCC which widen these disparities further. OBBBA dramatically expanded
the maximum credit rate, from 35% of care expenses at $15,000 to 50%,
phasing down to a minimum of 20% of care expenses for incomes exceeding
$103,000 (or $206,000 for married couples).' It also increased the maxi-
mum credit from $600 for one dependent and $1,200 for two or more depen-
dents to $1,050 and $2,100, respectively. While these changes may sound
like they should benefit families at the $15,000 threshold the most,
virtually no low- or middle-income families will wind up claiming it.
As New York's CDCC is coupled to the federal CDCC in IRC § 21, this
means the state will automatically be absorbing the cost of this massive
expansion of the regressive, uncapped CDCC that disproportionately flows
to high-income households who can better afford the cost of care to
begin with. This bill therefore decouples the state CDCC from the feder-
al expansion, freezing it at its current level while implementing a
commonsense phaseout for extremely high-income filers making more than
$500,000 (or $1,000,000 if married filing jointly).
This commonsense curtailing of the CDCC will free up millions of dollars
in state resources that could be better used for expenditures like the
child tax credit, which is a much more equitable and effective credit
than the CDCC, or universal childcare, which would help to stem the loss
of middle-class households from the state while addressing New York's
urgent affordability crisis.
 
PRIOR LEGISLATIVE HISTORY:
None
 
FISCAL IMPLICATIONS:
TBD. The total cost of the CDCC is projected to hit $120 million in tax
year 2025.
 
EFFECTIVE DATE:
This act shall take effect immediately and apply to taxable years
commencing on or after January 1st, 2026.
1 Crandall-Hollick, Margot. "The 2025 Reconciliation Law Makes Some
Modest Changes to Child Care Tax Benefits, Provides Little Help for
Low-Income Families." Tax Policy Center, 30 July 2025,
taxpolicycenter.org/taxvox/2025-reconciliation-law-makes-some-modest-chan
ges-child-care-tax-benefitsprovides-little.
2 New York State Department of Taxation and Finance. Annual Report on
New York State Tax Expenditures: Fiscal Year 2026. New York State
Department of Taxation and Finance and Division of the Budget, 2024.
3 Tax Law § 606(c)(1-b) New York State Comptroller Thomas DiNapoli. Tax
Provisions under the Federal Reconciliation Bill. 2025.