House Finance Committee hears bill to let parents who use dependent-care FSAs claim Pennsylvania child-care credit

The House Finance Committee held a public hearing on House Bill 1534, a proposal to amend the Pennsylvania child and dependent care tax credit so taxpayers who receive dependent-care benefits through a federal flexible spending account (FSA) can also claim the state credit, Representative Hambidge, the bill’s prime sponsor, told the committee.

"Pennsylvania's form precludes you from actually taking the dependent care tax credit" if you report dependent-care benefits on the federal form, Representative Hambidge said, and the bill would align the state form with the federal filing process to allow those families to receive the state credit.

The change matters to families who pay for child care and to state budget analysts: the committee chair said, "The Department of Revenue reports there are 205,000 people in Pennsylvania who claim the child and dependent care tax credit." Chair also said the department has identified about $127 million on state tax forms and that the average claimant currently receives about $620; the chair added the committee expected an updated fiscal estimate from the Department of Revenue next week.

Nut graf: The bill responds to a paperwork mismatch between federal IRS forms and Pennsylvania’s Schedule DC that can block families who use a federal dependent-care FSA from receiving the state tax credit. Committee members pressed the sponsor and staff on how federal forms interact with state rules and on the potential fiscal impact; the committee did not vote on the bill at the hearing and set a committee vote and amendment deadline.

Representative Hambidge walked the committee through the mechanics on federal IRS Form 2441 and the state Schedule DC. She said the federal form instructs filers who received dependent-care benefits to complete a separate section, and that the federal calculation can reduce or eliminate the line used by Pennsylvania’s Schedule DC to determine state credit eligibility. "If you've taken the federal credit of $5,000, you can't proceed on the form," Hambidge said, describing how the federal calculation can produce a zero that stops the state claim process.

Representative Venkat asked whether the federal FSA benefit — up to $5,000 that reduces federal taxable income — still provides meaningful state-level benefit and what the marginal advantage would be for low- and middle-income taxpayers. Hambidge answered that the effect depends on household income and that the current form structure results in two classes of taxpayers "by forms only," treating similar families differently depending on whether they use the FSA.

The chair framed possible fiscal outcomes while noting uncertainty: using a round hypothetical of 10,000 additional claimants, the chair said that would imply a roughly $6.2 million impact, but added that the Department of Revenue would supply more precise estimates before the scheduled vote.

No formal action was taken at the hearing. The committee announced it intends to vote on House Bill 1534 at the first break (12 p.m.) on Tuesday, June 10; the amendment deadline for the bill is 1 p.m. the preceding Monday.

Ending: Committee members and the bill sponsor asked interested colleagues to submit amendment ideas before the deadline and said the department's updated fiscal analysis will inform the final committee vote.