HR 1067119th CongressIn Committee

LITTLE Act of 2025

Introduced: Feb 6, 2025

Standard Summary

Comprehensive overview in 1-2 paragraphs

The LITTLE Act of 2025 would make two major changes to the federal tax code. First, it creates a new childcare provider startup credit (Sec. 45BB) that allows a tax credit equal to 30% of qualified startup expenses a taxpayer incurs to establish and operate a childcare service, with a lifetime cap of $10,000 per taxpayer. This is aimed at encouraging the creation or expansion of childcare providers, subject to certain compliance and due-diligence requirements. Second, it expands and effectively makes more accessible the household and dependent care credit (Sec. 36C), which would provide a refundable credit tied to employment-related expenses for care of qualifying individuals. The credit is 50% of eligible expenses, phased down by 1 percentage point for every $2,000 of adjusted gross income above $15,000, with a minimum 35% credit possible. It places dollar caps on eligible expenses ($7,500 for one qualifying individual, $15,000 for two or more), incorporates earned-income limits, requires accurate identifying information for service providers and qualifying dependents, and includes definitions and rules for what counts as eligible care (including rules around dependent care centers and out-of-household services). The bill also includes inflation indexing and several governance provisions (regulations, conforming amendments, and effective date). In short, the bill aims to (1) promote childcare startup activity and (2) make the care-related tax credit broader, more generous, and more accessible to working families, while indexing amounts for inflation and tightening information-reporting requirements.

Key Points

1New childcare provider startup credit (Sec. 45BB)
2- 30% credit of qualified childcare startup expenses for the tax year.
3- Qualified taxpayer must provide compliant childcare to 2+ children for a significant portion of the year.
4- Startup expenses are defined as certain startup expenditures paid or incurred in the 2-year period ending the tax year.
5- Cap: aggregate credits may not exceed $10,000 per taxpayer across all taxable years.
6- No double benefit: expenses can't be credited if already deductible or credited under other provisions.
7- Credit is treated as part of the general business credits (Sec. 38(b)).
8- Effective date: applies to expenses paid or incurred after enactment.
9Expanded and refundable household and dependent care credit (Sec. 36C)
10- Credit equals the applicable percentage (starting at 50%, phased down to a floor of 35%).
11- Phase-down: 1 percentage point for every $2,000 of AGI above $15,000.
12- Qualifying individuals include: (A) a dependent under 13, (B) a dependent who is physically/mentally incapable and shares the home, or (C) a spouse who is incapable and shares the home.
13- Eligible expenses include household services and care of a qualifying individual; excludes overnight camping; certain services outside the home counted only under specific rules.
14- Dollar limits: $7,500 for one qualifying individual; $15,000 for two or more, reduced by amounts excludable under Sec. 129.
15- Earned income limitations: credit typically cannot exceed the lesser of earned incomes, with special rules for a spouse who is a student or incapable.
16- Special rules on place of abode, marital status, in-community and separated spouses, and divorced or custodial parent scenarios.
17- Dependent care centers count if they meet state/local requirements and other conditions; centers defined as facilities with >6 non-resident individuals and receiving a fee for services.
18- Reporting requirements: provider and qualifying individual identifying information (names, addresses, and tax IDs) on the tax return claiming the credit.
19- Inflation indexing: dollar amounts adjusted for inflation beginning after 2024, with rounding rules.
20- Effective date: applies to taxable years beginning after enactment.
21Administrative and cross-references
22- The bill makes conforming amendments to various parts of the Internal Revenue Code to integrate Secs. 45BB and 36C and to modify related references (e.g., 38(b) credit, 21-related references, etc.).
23- The Secretary would issue regulations or guidance to administer these provisions.
24Overall framing
25- Short title: “Lowering Infant and Toddler Tuition for Learning and Education Act of 2025” or the “LITTLE Act of 2025.”
26- Sponsor: Representative Gottheimer (introduced February 6, 2025); referred to the Ways and Means Committee.

Impact Areas

Primary group/area affected- Childcare providers and childcare startup ventures (via the new 45BB credit) — potentially encouraging new providers or expansion of existing services.- Working families and individuals with caregiving responsibilities (via the expanded 36C credit) who incur expenses for household and dependent care needed to maintain employment.Secondary group/area affected- States and local governments (through compliance with state/local childcare requirements and potential changes in demand for licensed facilities).- Dependent care centers and other care facilities (subject to new definitions and requirements for eligibility and reporting).Additional impacts- Tax administration and compliance burden: added reporting requirements for providers and qualifying individuals; more complex calculations and eligibility determinations; inflation adjustments require updated planning and guidance.- Revenue and fiscal effects: shifting incentives from individual credits toward provider startup incentives could alter federal tax receipts; broader eligibility and refundable nature (as described in title) could affect outlays, depending on final implementation and any interaction with existing credits.- Employment and labor market effects: lower effective cost of care for many families could enable greater workforce participation, especially for low- and middle-income households.Qualified startup expenses (Sec. 45BB): startup costs a childcare provider incurs to set up and begin operating; these are typically amortizable under Section 195.Qualified taxpayer: a childcare provider meeting state/local requirements and serving 2+ children for much of the year.Qualified childcare startup credit: a tax credit equal to 30% of those startup expenses, subject to a $10,000 lifetime cap per taxpayer across all years.Qualified individual (Sec. 36C): a person eligible for care whose expenses qualify for the credit (e.g., a child under 13 or a spouse/dependent who cannot care for themselves and shares the home).Employment-related expenses: expenses paid for household services and care that enable the taxpayer to be gainfully employed.Dependent care center: a care facility that serves more than six non-resident individuals and charges a fee for services.36C credit: a percentage-based credit for caring for qualifying individuals, with a cap on expenses and an earned-income limitation; designed to be more generous at lower to moderate incomes and to scale down with higher incomes.129 exclusion: an existing exclusion from gross income related to dependent care, which reduces the amount eligible for the 36C credit.

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