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Evers signs child care tax credit hike, urges more action on child care support

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Evers signs child care tax credit hike, urges more action on child care support

Mar 04, 2024 | 6:38 pm ET
By Erik Gunn
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Evers signs child care tax credit hike, urges more action on child care support
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Gov. Tony Evers talks to children at La Casa de Esperanza child care center in Waukesha before signing legislation increasing the Wisconsin Child and Dependant Care tax credit on Monday. (Screenshot | WisEye)

Gov. Tony Evers signed legislation increasing Wisconsin’s child and dependent care tax credit Monday and at the same time renewed his call for broader state support for child care providers.

We need a long-term solution to our state’s looming child care crisis—including direct support for providers through Child Care Counts—and I will work with anyone from either side of the aisle who’s ready to work together to get this done,” Evers said.

The governor signed the legislation — AB-1023 — in a ceremony at a Waukesha child care center, La Casa de Esperanza.

The bill raises the state income tax credit for a family’s child and dependent care expenses to 100% of the federal tax credit from the current 50%. It also raises the maximum amount of expenses that can be counted to calculate the credit.

The child care tax credit is the only measure of four Republican-authored tax cut bills introduced in January that won broad support from Democratic lawmakers and the only one the Democratic governor signed. On Friday Evers vetoed the other three bills — changing the state’s second-lowest tax bracket, exempting the first $75,000 to $150,000 of retirement income, and nearly doubling the maximum tax credit for married couples.

It is also the only child-care related bill that Republicans authored that won any Democratic votes in the Legislature.

Appealing again for Child Care Counts money

In signing the child care tax credit bill Monday, Evers noted that he had included a similar provision in his proposed 2023-25 budget but that Republicans on the Legislature’s budget committee had removed that provision.

He reiterated the push he, along with child care providers as well as Democrats in the Legislature, have made for ongoing outside funding to bolster child care, such as the federally funded pandemic-era Child Care Counts program that granted $20 million a month to the state’s child care providers to help them forestall raising fees while allowing them to improve pay for their employees.

Those funds were cut back to $10 million a month starting in June. Evers’ proposals to restore Child Care Counts with more than $300 million in state funds were rejected in the budget and again in a special session the governor called in the fall. In October, Evers redirected $170 million in remaining federal pandemic relief money to extend a more limited version of the program through 2025.

The Evers administration, Democratic lawmakers, child care providers and outside experts have all called for sustained public funding for child care. They’ve argued that while compensation for child care teachers must be higher to sustain a professional workforce, raising child care fees to fully cover that expense will make the cost of care prohibitive for all but the wealthiest families.

The new tax credit expansion will not address that gap, said Corrine Hendrickson, a New Glarus child care provider and child care advocacy leader.

It also “doesn’t help parents afford it now, because they will not receive any of that money until next spring” when they file their income taxes, Hendrickson said.

According to the Legislative Fiscal Bureau, about 111,170 filers are expected to be eligible for the tax credit, saving $656 on average on their 2024 state income taxes.

“The ‘average’  [savings] the parent gets back doesn’t even cover two weeks for two kids,” Hendrickson said Monday. For families “struggling the most, it likely won’t help them at all. And it definitely doesn’t increase the supply of child care, as it doesn’t allow child care programs to meaningfully increase tuition without pricing families out and forcing them to choose between care and their employment.”

Other child care bills far from the finish line

The tax credit bill was introduced apart from a series of other Republican bills targeting child care — most of which have drawn criticism from a broad swath of child care providers.

Six of those bills passed the Assembly without the votes of any Democratic lawmakers this past September. 

So far one of those has passed the Senate, also with only Republican support. AB-388 would create a $15 million revolving loan program for child care center operators. 

It would reverse one of Evers’ budget vetoes — which turned a loan program into a grant program. Evers is expected to veto that measure when it reaches his desk.

The other five bills are eligible for action in the state Senate, but there have been no committee votes to advance them to the Senate floor, where work for the year is expected to wrap up by the end of March. While all of them drew some support at public hearings, they were also widely panned by child care providers and advocates.

With the Assembly having already wrapped up regular sessions for the year, two other bills are likely to die without further action in the Legislature.

AB-660 would create a tax credit for employers making contributions toward child care programs, and AB-1035 would require school districts with preschool programs such as 4-year-old kindergarten (4K) programs to contract with licensed child care operators in their districts as preschool providers.

Of all the GOP measures only the 4K bill has drawn broad support from providers, who had advocated with the principal Assembly author, Rep. Joy Goeben (R-Hobart) during its drafting. At public hearings, however, public school advocates and the Department of Public Instruction (DPI) raised objections to the proposal.

Hendrickson, co-founder of WECAN (Wisconsin Early Childhood Action Needed), said providers are talking with Democratic lawmakers who have raised concerns that the bill was an attack on public schools, which advocates of the measure contend is not the case. Unlike voucher schools, for example, private child care providers are licensed by the state Department of Children and Families (DCF), she observed. While DCF officials offered testimony “for information” only on the proposal, their comments have been broadly favorable toward it.

Both the U.S. departments of Education and Health and Human Services are encouraging community preschool programs that can be provided by schools and child care providers in cooperation, an approach sometimes referred to as “mixed delivery.” The Wisconsin proposal aims to revive a vision that guided the original effort to establish widespread preschool programs three decades ago: having all school districts and all child care providers work together.

“We are continuing to work with Rep. Goeben and talk with DPI and DCF about how we can move that forward and make it happen,” Hendrickson said.

The uneven mechanics of the child care tax credit increase

Under Wisconsin’s new child and dependent care tax credit law law, which takes effect for 2024 state income tax bills, taxpayers will be able to take a tax credit on a percentage of up to $10,000 in expenses for one child or $20,000 in expenses for two or more children.

The federal tax credit is available as a percentage of up to $3,000 in expense for one child or $6,000 for two or more children. Before Gov. Tony Evers signed the bill Monday, the state credit was 50% of the federal credit. 

For taxpayers with incomes of $15,000 or less, the federal credit is worth 35% of those expenses — worth up to $1,050 for one child or $2,100 for two or more children. The state credit was worth half as much: up to $525 for one child or $1,050 for two or or more children.

For taxpayers with incomes of $43,000 or more, the federal tax credit is 20% of those expenses, up to $600 for one child or $1,200 for two or more children, while the old state credit was $300 for one child or $600 for two or more children.

In between those income levels, the percentage, and thus the value of the tax credit, decreases as income rises.

Evers’ 2023-25 budget proposal that lawmakers deleted called for making the state credit equal to the federal credit. The bill he signed Monday accomplishes that. But Evers’ original proposal didn’t change the maximum value of expenses that could be applied to the credit, which the new bill does.

Under the new law, while the tax credit is equal to the federal credit, the expenses to which it can be applied are now much higher. 

State taxpayers will be able to take the credit as a percentage of up to $10,000 in expenses for one child instead of $3,000, or $20,000 in expenses for two or more children instead of $6,000. On paper it could be worth up to $3,500 for a low-income family with one child or up to $7,000 for two or more children.

The actual value of the tax credit, however, is limited to the total state income tax liability for the family.

For example, two families could each pay $10,000 for child care. Both could have taxable incomes above $43,000, qualifying them for a tax credit that is equal to 20% of that cost.

A family whose tax bill is less than the full $2,000 of the credit, however, will only get an amount equal to that tax bill. As a result, that family will pay more out of pocket for child care than a family whose total state tax bill tax liability is $2,000 or more.

On the Assembly floor in February, Rep. Mike Bare (D-Verona) voted for the measure, but argued that the tax credit should be made refundable — returning to the taxpayer in cash the difference between the filer’s tax liability and the credit’s full value.