What is the Family Tax Relief Act?

The Family Tax Relief Act of 2009 is a bill that will help a family with their financial picture by improving the existing Childcare and Dependent Tax Credit. The credit exists to help families offset the cost of child and dependent care. Under the bill, the amount of the credit will increase, and the regulations surrounding employer benefits to their employees for the purpose of child and dependent care.

What will the Family Tax Relief Act Do?

The Family Tax Relief Act of 2009 will improve the current Childcare and Dependent Tax Credit by making it fully refundable. This means that low income families who otherwise could not get the credit will be able to claim it, and those who were only able to get a partial credit may, now get a full credit. The total amount of expenses that can be claimed will rise from $3,000 to $5,000 for one child and from $6,000 to $10,000 for two or more dependents or children. Where the current credit only allows for low income families to claim 35% of expenses, the new bill allows the credit to consider up to 50% of the expenses and adjusts the income levels where only a portion of the credit can be earned. The income values will be considered for inflation, to ensure the credit continues to hold its value over time. Also, the income limitation for spouses, who are students or unable to care for themselves, will rise from $250 to $415.

How will the Tax Relief Act Impact Employers?

First, the test to make sure employees who are not paid as much money as others are still receiving a fair share of the benefits will be adjusted to make sure it is still working. The maximum amount of tax free employee benefits will increase from $5,000 to $7,500 for one child, and to $10,000 for families with more than one child. The employee benefit will also be indexed to account for inflation and prevent it from losing value over time.

The Status of the Family Tax Relief Act

As of May 7, 2009, there has been no further action on this bill in Congress. Until it is signed into law by the President of the United States, there will be no changes to amend the current IRS tax code. It has been referred to the Committee of Finance. Even after it is signed into law, it may be a year or two before the changes in the tax code take effect.