IRC Section 21, IRC Section 129, childcare deduction, childcare tax credit, dual-earner families, tax relief, consumptive expenses, non-consumptive expenses, tax expenditures

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Today, many working parents are caught in a “childcare squeeze”: While they require two incomes just to make ends meet, they end up spending a strikingly large percentage of their income on childcare so that they can work away from the home. Worse still, some parents find themselves “squeezed out” of the market entirely, unable to earn the additional income their family requires because they cannot find jobs that pay enough to offset soaring childcare expenses. This Article argues that the tax laws have played an important role in aggravating these hardships. Currently, the Internal Revenue Code treats the childcare costs incurred by working parents as personal expenses, subject to various dollar limitations, percentage limits, and phase-outs. Once these limitations are applied, working parents will receive tax relief for only a small fraction of the childcare costs they actually incur. This Article shows that this is inappropriate as a matter of fundamental tax policy and results in the over-taxation of the working family. It then provides a blueprint for meaningful reform that would properly treat working childcare costs like other costs of earning income and keep the tax laws from worsening the working family’s economic plight.



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