President Obama plans to propose a near doubling of the Child and Dependent Care Tax Credit for middle-income families earning under $85,000, establishment of a system of automatic 401(k) enrollments and simplifying and expanding the Saver’s Tax Credit. These initiatives will be included in the president’s fiscal year 2010 budget and are among several recommendations made by the Middle Class Task Force chaired by Vice President Biden and announced by Obama and Biden on January 25.
The administration proposes to increase the tax credit rate for child and dependent care expenses from 20 percent to 25 percent for families making under $85,000 a year. The credit is phased down to 20 percent for families earning between $85,000 and $115,000, noted a senior administration official. Families could claim up to $3,000 in expenses for one child and $6,000 for two children. The maximum credit for a household with two children earning below $80,000 annually would increase from $1,200 to $2,100 under the proposal.
Under the automatic IRA proposal, employers who do not offer a retirement plan are required to automatically enroll employees in a direct-deposit IRA unless they opt out. According to a White House release, the voluntary contributions will be matched by a Saver’s Tax Credit for eligible families. The proposal indicates that the saver’s credit would match 50 percent of the first $1,000 of contributions by families earning up to $65,000 and offer a partial credit to families making up to $85,000. The administration also will propose to make the Saver’s Tax Credit refundable.
The White House billed the middle-class tax relief and retirement savings incentives as one of the key themes in the president’s State of the Union address on January 27. In addition, a senior administration official noted that the upcoming address will emphasize job creation efforts and measures to reduce the short- and long-term federal deficit.
The administration will offer greater details about the proposals when the president’s budget is released on February 1. The Middle Class Task Force will release its end-of-year report in February.
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