Economic Growth and Tax Relief Reconciliation Act of 2001/Title II

TITLE II—TAX BENEFITS RELATING TO CHILDREN

SEC. 201. MODIFICATIONS TO CHILD TAX CREDIT.

(a) Increase in Per Child Amount.—Subsection (a) of section 24 (relating to child tax credit) is amended to read as follows:

``(a) Allowance of Credit.—

``(1) In general.—There shall be allowed as a credit against the tax imposed by this chapter for the taxable year with respect to each qualifying child of the taxpayer an amount equal to the per child amount.

``(2) Per child amount.—For purposes of paragraph (1), the per child amount shall be determined as follows:

``In the case of any taxable year    The per child amount is—
        beginning in—
2001, 2002, 2003, or 2004 ....................................... $  600
2005, 2006, 2007, or 2008 .......................................... 700
2009 ............................................................... 800
2010 or thereafter ............................................... 1,000.''.

(b) Credit Allowed Against Alternative Minimum Tax.—

(1) In general.—Subsection (b) of section 24 (relating to child tax credit) is amended by adding at the end the following new paragraph:

``(3) Limitation based on amount of tax.—The credit allowed under subsection (a) for any taxable year shall not exceed the excess of—

``(A) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over

``(B) the sum of the credits allowable under this subpart (other than this section) and section 27 for the taxable year.''.

(2) Conforming amendments.—

(A) The heading for section 24(b) is amended to read as follows: ``Limitations.—''.

(B) The heading for section 24(b)(1) is amended to read as follows: ``Limitation based on adjusted gross income.—''.

(C) Section 24(d), as amended by subsection (c), is amended—

(i) by striking ``section 26(a)'' each place it appears and inserting ``subsection (b)(3)'', and

(ii) in paragraph (1)(B) by striking ``aggregate amount of credits allowed by this subpart'' and inserting ``amount of credit allowed by this section''.

(D) Paragraph (1) of section 26(a) is amended by inserting ``(other than section 24)'' after ``this subpart''.

(E) Subsection (c) of section 23 is amended by striking ``and section 1400C'' and inserting ``and sections 24 and 1400C''.

(F) Subparagraph (C) of section 25(e)(1) is amended by inserting ``, 24,'' after ``sections 23''.

(G) Section 904(h) is amended by inserting ``(other than section 24)'' after ``chapter''.

(H) Subsection (d) of section 1400C is amended by inserting ``and section 24'' after ``this section''.

(c) Refundable Child Credit.—

(1) In general.—So much of section 24(d) (relating to additional credit for families with 3 or more children) as precedes paragraph (2) is amended to read as follows:

``(d) Portion of Credit Refundable.—

``(1) In general.—The aggregate credits allowed to a taxpayer under subpart C shall be increased by the lesser of—

``(A) the credit which would be allowed under this section without regard to this subsection and the limitation under section 26(a), or

``(B) the amount by which the amount of credit allowed by this section (determined without regard to this subsection) would increase if the limitation imposed by section 26(a) were increased by the greater of—

``(i) 15 percent (10 percent in the case of taxable years beginning before January 1, 2005) of so much of the taxpayer's earned income (within the meaning of section 32) which is taken into account in computing taxable income for the taxable year as exceeds $10,000, or

``(ii) in the case of a taxpayer with 3 or more qualifying children, the excess (if any) of—

``(I) the taxpayer's social security taxes for the taxable year, over

``(II) the credit allowed under section 32 for the taxable year.

``The amount of the credit allowed under this subsection shall not be treated as a credit allowed under this subpart and shall reduce the amount of credit otherwise allowable under subsection (a) without regard to section 26(a).''.

(2) Inflation adjustment.—Subsection (d) of section 24 is amended by adding at the end the following new paragraph:

``(4) Inflation adjustment.—In the case of any taxable year beginning in a calendar year after 2001, the $10,000 amount contained in paragraph (1)(B) shall be increased by an amount equal to—

``(A) such dollar amount, multiplied by

``(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting `calendar year 2000' for `calendar year 1992' in subparagraph (B) thereof.

``Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $50.''.

(3) Conforming amendment.—Section 32 is amended by striking subsection (n).

(d) Elimination of Reduction of Credit to Taxpayer Subject to Alternative Minimum Tax Provision.—Section 24(d) is amended—

(1) by striking paragraph (2), and

(2) by redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively.

(e) Effective Dates.— (1) In general.—Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2000.

(2) Subsection (b).—The amendments made by subsection (b) shall apply to taxable years beginning after December 31, 2001.

SEC. 202. EXPANSION OF ADOPTION CREDIT AND ADOPTION ASSISTANCE PROGRAMS.

(a) In General.—

(1) Adoption credit.—Section 23(a)(1) (relating to allowance of credit) is amended to read as follows:

``(1) In general.—In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter—

``(A) in the case of an adoption of a child other than a child with special needs, the amount of the qualified adoption expenses paid or incurred by the taxpayer, and

``(B) in the case of an adoption of a child with special needs, $10,000.''.

(2) Adoption assistance programs.—Section 137(a) (relating to adoption assistance programs) is amended to read as follows:

``(a) In General.—Gross income of an employee does not include amounts paid or expenses incurred by the employer for adoption expenses in connection with the adoption of a child by an employee if such amounts are furnished pursuant to an adoption assistance program. The amount of the exclusion shall be—

``(1) in the case of an adoption of a child other than a child with special needs, the amount of the qualified adoption expenses paid or incurred by the taxpayer, and

``(2) in the case of an adoption of a child with special needs, $10,000.''.

(b) Dollar Limitations.—

(1) Dollar amount of allowed expenses.—

(A) Adoption expenses.—Section 23(b)(1) (relating to allowance of credit) is amended—

(i) by striking ``$5,000'' and inserting ``$10,000'',

(ii) by striking ``($6,000, in the case of a child with special needs)'', and

(iii) by striking ``subsection (a)'' and inserting ``subsection (a)(1)(A)''.

(B) Adoption assistance programs.—Section 137(b)(1) (relating to dollar limitations for adoption assistance programs) is amended—

(i) by striking ``$5,000'' and inserting ``$10,000'', and

(ii) by striking ``($6,000, in the case of a child with special needs)'', and

(iii) by striking ``subsection (a)'' and inserting ``subsection (a)(1)''.

(2) Phase-out limitation.—

(A) Adoption expenses.—Clause (i) of section 23(b)(2)(A) (relating to income limitation) is amended by striking ``$75,000'' and inserting ``$150,000''.

(B) Adoption assistance programs.—Section 137(b)(2)(A) (relating to income limitation) is amended by striking ``$75,000'' and inserting ``$150,000''.

(c) Year Credit Allowed.—Section 23(a)(2) (relating to year credit allowed) is amended by adding at the end the following new flush sentence:

``In the case of the adoption of a child with special needs, the credit allowed under paragraph (1) shall be allowed for the taxable year in which the adoption becomes final.''.

(d) Repeal of Terminations.—

(1) Children without special needs.—Paragraph (2) of section 23(d) (relating to definition of eligible child) is amended to read as follows:

``(2) Eligible child.—The term `eligible child' means any individual who—

``(A) has not attained age 18, or

``(B) is physically or mentally incapable of caring for himself.''.

(2) Adoption assistance programs.—Section 137 (relating to adoption assistance programs) is amended by striking subsection (f).

(e) Adjustment of Dollar and Income Limitations for Inflation.—

(1) Adoption credit.—Section 23 (relating to adoption expenses) is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection:

``(h) Adjustments for Inflation.—In the case of a taxable year beginning after December 31, 2002, each of the dollar amounts in subsection (a)(1)(B) and paragraphs (1) and (2)(A)(i) of subsection (b) shall be increased by an amount equal to—

``(1) such dollar amount, multiplied by

``(2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting `calendar year 2001' for `calendar year 1992' in subparagraph (B) thereof.''.

(2) Adoption assistance programs.—Section 137 (relating to adoption assistance programs), as amended by subsection (d), is amended by adding at the end the following new subsection:

``(f) Adjustments for Inflation.—In the case of a taxable year beginning after December 31, 2002, each of the dollar amounts in subsection (a)(2) and paragraphs (1) and (2)(A) of subsection (b) shall be increased by an amount equal to—

``(1) such dollar amount, multiplied by

``(2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting `calendar year 2001' for `calendar year 1992' in subparagraph (B) thereof.''.

(f) Credit Allowed Against Alternative Minimum Tax.—

(1) In general.—Subsection (b) of section 23 is amended by adding at the end the following new paragraph:

``(4) Limitation based on amount of tax.—The credit allowed under subsection (a) for any taxable year shall not exceed the excess of—

``(A) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over

``(B) the sum of the credits allowable under this subpart (other than this section) and section 27 for the taxable year.''.

(2) Conforming amendments.—

(A) Section 23(c), as amended by section 201(b), is amended—

(i) by striking ``section 26(a)'' and inserting ``subsection (b)(4)'', and

(ii) by striking ``reduced by the sum of the credits allowable under this subpart (other than this section and sections 24 and 1400C)''.

(B) Section 24(b)(3)(B), as added by section 201(b), is amended by striking ``this section'' and inserting ``this section and section 23''.

(C) Sections 26(a)(1), 904(h), and 1400C(d), as amended by section 201(b), are each amended by striking ``section 24'' and inserting ``sections 23 and 24''.

(g) Effective Date.— (1) In general.—Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2001.

(2) Subsection (a).—The amendments made by subsection (a) shall apply to taxable years beginning after December 31, 2002.

SEC. 203. REFUNDS DISREGARDED IN THE ADMINISTRATION OF FEDERAL PROGRAMS AND FEDERALLY ASSISTED PROGRAMS.

Any payment considered to have been made to any individual by reason of section 24 of the Internal Revenue Code of 1986, as amended by section 201, shall not be taken into account as income and shall not be taken into account as resources for the month of receipt and the following month, for purposes of determining the eligibility of such individual or any other individual for benefits or assistance, or the amount or extent of benefits or assistance, under any Federal program or under any State or local program financed in whole or in part with Federal funds.

SEC. 204. DEPENDENT CARE CREDIT.

(a) Increase in Dollar Limit.—Subsection (c) of section 21 (relating to expenses for household and dependent care services necessary for gainful employment) is amended—

(1) by striking ``$2,400'' in paragraph (1) and inserting ``$3,000'', and

(2) by striking ``$4,800'' in paragraph (2) and inserting ``$6,000''.

(b) Increase in Applicable Percentage.—Section 21(a)(2) (defining applicable percentage) is amended—

(1) by striking ``30 percent'' and inserting ``35 percent'', and

(2) by striking ``$10,000'' and inserting ``$15,000''.

(c) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2002.

SEC. 205. ALLOWANCE OF CREDIT FOR EMPLOYER EXPENSES FOR CHILD CARE ASSISTANCE.

(a) In General.—Subpart D of part IV of subchapter A of chapter 1 (relating to business related credits), as amended by section 619, is further amended by adding at the end the following:

``SEC. 45F. EMPLOYER-PROVIDED CHILD CARE CREDIT.

``(a) In General.—For purposes of section 38, the employer-provided child care credit determined under this section for the taxable year is an amount equal to the sum of—

``(1) 25 percent of the qualified child care expenditures, and

``(2) 10 percent of the qualified child care resource and referral expenditures,

``of the taxpayer for such taxable year.

``(b) Dollar Limitation.—The credit allowable under subsection (a) for any taxable year shall not exceed $150,000.

``(c) Definitions.—For purposes of this section—

``(1) Qualified child care expenditure.—

``(A) In general.—The term `qualified child care expenditure' means any amount paid or incurred—

``(i) to acquire, construct, rehabilitate, or expand property—

``(I) which is to be used as part of a qualified child care facility of the taxpayer,

``(II) with respect to which a deduction for depreciation (or amortization in lieu of depreciation) is allowable, and

``(III) which does not constitute part of the principal residence (within the meaning of section 121) of the taxpayer or any employee of the taxpayer,

``(ii) for the operating costs of a qualified child care facility of the taxpayer, including costs related to the training of employees, to scholarship programs, and to the providing of increased compensation to employees with higher levels of child care training, or

``(iii) under a contract with a qualified child care facility to provide child care services to employees of the taxpayer.

``(B) Fair market value.—The term `qualified child care expenditures' shall not include expenses in excess of the fair market value of such care.

``(2) Qualified child care facility.—

``(A) In general.—The term `qualified child care facility' means a facility—

``(i) the principal use of which is to provide child care assistance, and

``(ii) which meets the requirements of all applicable laws and regulations of the State or local government in which it is located, including the licensing of the facility as a child care facility.

``Clause (i) shall not apply to a facility which is the principal residence (within the meaning of section 121) of the operator of the facility.

``(B) Special rules with respect to a taxpayer.—A facility shall not be treated as a qualified child care facility with respect to a taxpayer unless—

``(i) enrollment in the facility is open to employees of the taxpayer during the taxable year,

``(ii) if the facility is the principal trade or business of the taxpayer, at least 30 percent of the enrollees of such facility are dependents of employees of the taxpayer, and

``(iii) the use of such facility (or the eligibility to use such facility) does not discriminate in favor of employees of the taxpayer who are highly compensated employees (within the meaning of section 414(q)).

``(3) Qualified child care resource and referral expenditure.—

``(A) In general.—The term `qualified child care resource and referral expenditure' means any amount paid or incurred under a contract to provide child care resource and referral services to an employee of the taxpayer.

``(B) Nondiscrimination.—The services shall not be treated as qualified unless the provision of such services (or the eligibility to use such services) does not discriminate in favor of employees of the taxpayer who are highly compensated employees (within the meaning of section 414(q)).

``(d) Recapture of Acquisition and Construction Credit.—

``(1) In general.—If, as of the close of any taxable year, there is a recapture event with respect to any qualified child care facility of the taxpayer, then the tax of the taxpayer under this chapter for such taxable year shall be increased by an amount equal to the product of—

``(A) the applicable recapture percentage, and

``(B) the aggregate decrease in the credits allowed under section 38 for all prior taxable years which would have resulted if the qualified child care expenditures of the taxpayer described in subsection (c)(1)(A) with respect to such facility had been zero.

``(2) Applicable recapture percentage.—

``(A) In general.—For purposes of this subsection, the applicable recapture percentage shall be determined from the following table:

                                                          The applicable
                                                               recapture
      ``If the recapture event occurs in:                 percentage is:
                Years 1-3.....................................  100
                Year 4........................................   85
                Year 5........................................   70
                Year 6........................................   55
                Year 7........................................   40
                Year 8........................................   25
                Years 9 and 10................................   10
                Years 11 and thereafter.......................    0.

``(B) Years.—For purposes of subparagraph (A), year 1 shall begin on the first day of the taxable year in which the qualified child care facility is placed in service by the taxpayer.

``(3) Recapture event defined.—For purposes of this subsection, the term `recapture event' means—

``(A) Cessation of operation.—The cessation of the operation of the facility as a qualified child care facility.

``(B) Change in ownership.—

``(i) In general.—Except as provided in clause (ii), the disposition of a taxpayer's interest in a qualified child care facility with respect to which the credit described in subsection (a) was allowable.

``(ii) Agreement to assume recapture liability.—Clause (i) shall not apply if the person acquiring such interest in the facility agrees in writing to assume the recapture liability of the person disposing of such interest in effect immediately before such disposition. In the event of such an assumption, the person acquiring the interest in the facility shall be treated as the taxpayer for purposes of assessing any recapture liability (computed as if there had been no change in ownership).

``(4) Special rules.—

``(A) Tax benefit rule.—The tax for the taxable year shall be increased under paragraph (1) only with respect to credits allowed by reason of this section which were used to reduce tax liability. In the case of credits not so used to reduce tax liability, the carryforwards and carrybacks under section 39 shall be appropriately adjusted.

``(B) No credits against tax.—Any increase in tax under this subsection shall not be treated as a tax imposed by this chapter for purposes of determining the amount of any credit under subpart A, B, or D of this part.

``(C) No recapture by reason of casualty loss.—The increase in tax under this subsection shall not apply to a cessation of operation of the facility as a qualified child care facility by reason of a casualty loss to the extent such loss is restored by reconstruction or replacement within a reasonable period established by the Secretary.

``(e) Special Rules.—For purposes of this section—

``(1) Aggregation rules.—All persons which are treated as a single employer under subsections (a) and (b) of section 52 shall be treated as a single taxpayer.

``(2) Pass-thru in the case of estates and trusts.—Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.

``(3) Allocation in the case of partnerships.—In the case of partnerships, the credit shall be allocated among partners under regulations prescribed by the Secretary.

``(f) No Double Benefit.—

``(1) Reduction in basis.—For purposes of this subtitle—

``(A) In general.—If a credit is determined under this section with respect to any property by reason of expenditures described in subsection (c)(1)(A), the basis of such property shall be reduced by the amount of the credit so determined.

``(B) Certain dispositions.—If, during any taxable year, there is a recapture amount determined with respect to any property the basis of which was reduced under subparagraph (A), the basis of such property (immediately before the event resulting in such recapture) shall be increased by an amount equal to such recapture amount. For purposes of the preceding sentence, the term `recapture amount' means any increase in tax (or adjustment in carrybacks or carryovers) determined under subsection (d).

``(2) Other deductions and credits.—No deduction or credit shall be allowed under any other provision of this chapter with respect to the amount of the credit determined under this section.''.

(b) Conforming Amendments.—

(1) Section 38(b), as amended by section 619, is amended by striking ``plus'' at the end of paragraph (13), by striking the period at the end of paragraph (14) and inserting ``, plus'', and by adding at the end the following:

``(15) the employer-provided child care credit determined under section 45F.''.

(2) The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by adding at the end the following:

``Sec. 45F. Employer-provided child care credit.''.

(3) Section 1016(a) is amended by striking ``and'' at the end of paragraph (26), by striking the period at the end of paragraph (27) and inserting ``, and'', and by adding at the end the following:

``(28) in the case of a facility with respect to which a credit was allowed under section 45F, to the extent provided in section 45F(f)(1).''.

(c) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2001.