The average Maryland family with two young children spends more than a fifth of its income on day care, but a newly expanded tax credit could provide millions of dollars in relief statewide.
A law that goes into effect Monday nearly quintuples the number of taxpayers eligible to claim the state’s child care tax credit, which is calculated as a fraction of a similar federal tax break. According to a legislative estimate, had the policy been in place in 2017, about 100,000 taxpayers would have been eligible to reduce their debts to the state by more than $13 million. Instead, parents were eligible to claim $3 million in child care tax credits that year.
Child care is “an incredible expense,” said Clinton Macsherry, director of public policy for the Maryland Family Network advocacy group. “Everyone’s grappling with it.” A Maryland family with two young children spends an average of $18,000 a year on day care.
The law is among hundreds that take effect Monday, including efforts to combat opioid addiction, modernize 911 systems and loosen restrictions on alcohol sales. And it’s among a handful of recent reforms through which the state is aiming to reduce financial burdens on poor and working-class families.
It raises the eligibility cap for the state tax credit from $50,000 of annual income (whether filing as an individual or as a married couple) to $92,000 for single parents and $143,000 for married couples filing taxes jointly. It also indexes those limits to inflation.
The amount families can claim from the state depends on how much they receive through the companion federal tax credit. Parents are eligible for state credits worth up to 32.5 percent of the value of the federal credit, which is calculated based on a fraction of annual child care expenses. Depending on income, the federal credit is worth 20% to 35% of what parents pay for child care in a year.
The credit also can be applied to cost of care for disabled adults or elderly dependents.
For a family earning around the state’s median income (about $81,000) and paying typical costs for child care, it means a state credit of a couple hundred dollars. For families earning $30,000 or less, it could amount to more than $1,500 toward state tax bills, on top of several thousand dollars claimed through the federal child care tax credit.
The measure also makes the tax credit refundable for single parents earning $50,000 or less, and married couples making up to $75,000. That means a family could receive a refund for any amount of the state credit that exceeds its state tax bill.
The credit can be claimed starting in tax year 2019.
Sen. Nancy King, a Montgomery County Democrat who sponsored the legislation, said it became a priority as she watched state residents like her daughter, a single mother, struggle to work and afford child care.
“There’s just so many families that can’t afford for a spouse to go to work because they can’t afford the child care,” she said. “I wonder how many people know [the credit] is even available.”
Macsherry said fewer families have been taking advantage of the state credit as its limits have failed to keep up with inflation and rising costs. In 2016, about 46,000 taxpayers claimed $8 million in credits, but because they were nonrefundable, only 23,600 of these taxpayers had enough tax liability to claim a total of $3.5 million, according to state legislative analysts.
“It just became less and less useful to a smaller and smaller number of people,” Macsherry said. “This really modernizes it.”
Melissa Rock, birth-to-3 strategic initiative director at Advocates for Children and Youth in Baltimore, said the tax credit expansion complements recent efforts to increase child care subsidies that are paid out through the Maryland State Department of Education. The state last year doubled how much working families can earn and still qualify for child care vouchers, to up to $71,525 in annual income, and another law that goes into effect Monday accelerates increases in the size of the subsidies provided.
The changes help families that might not be considered low-income, but still struggle to make ends meet, she said.
“These tend to be folks who, if they had some sort of crisis happen in their life, might not have enough savings to be able to get through that without slipping into poverty,” Rock said.
Among other laws going into effect Monday are measures:
» Creating an Opioid Restitution Fund to be spent on programs to treat and prevent addition and overdoses. The money would come from any settlement or judgment the state may reach with opioid manufacturers, such as Purdue Pharma, which it sued in May.
» Modernizing technology used to operate 911 systems, including improving cybersecurity, setting training standards and establishing records retention rules.
» Requiring state agencies to consider including public art in new construction projects.
» Renaming various state institutions — the Department of Labor, Licensing and Regulation becomes the Department of Labor; University of Maryland University College becomes University of Maryland Global Campus, and the Maryland State Law Library in Annapolis becomes the Thurgood Marshall State Law Library.
» Permanently protecting oysters within five sanctuaries around the Chesapeake Bay, in Harris Creek and the Little Choptank, Tred Avon, St. Mary’s and Manokin rivers. The legislation was a priority of Democratic House Speaker Michael Busch, who died in April, and becomes law after the General Assembly overrode a veto by Republican Gov. Larry Hogan.
» Loosening restrictions on the sale and consumption of alcohol. Breweries can now to serve up to 5,000 barrels a year in taprooms. Other laws allow some types of liquor license holders in St. Mary’s County to sell drinks Sunday at bars, and let Montgomery County liquor stores to sell beer chilled, so long as it’s in kegs or growlers.
» Requiring health insurers offering plans to small employers and on the Maryland Health Connection exchange to provide a special enrollment period when policyholders or their spouses become pregnant.
» Expanding schools across the state designed to set students up for careers in technology and to engage more directly with families and their communities. One law allows for the creation of as many as three schools through the P-TECH program, which focuses on workplace skills and credentials. Another creates a statewide framework for the founding of community schools, which provide a broad set of services to students’ families.