State Senate budget calls for child care tax refund | News

BOSTON — More than 85,000 low- to moderate-income families would be eligible for a refundable child care tax credit under a state Senate plan unveiled Tuesday.

A proposal tucked into a $47.6 billion budget rolled out by the Senate would convert income tax deductions for children under 12, dependent adults and business-related dependent care expenses into a refundable tax credit.

The proposal aims to help families that struggle with rising child care costs.

“Most low- and moderate-income families that are in need of child care cannot take advantage of a tax deduction, because they just don’t have the income,” Senate Ways and Means Chairman Michael Rodrigues, D-Westport, told reporters.

Rodrigues said the changes would mean an annual tax credit of about $190 for 85,000 families who qualify. The changes would cost the state about $16.3 million.

To pay for it, the Senate proposes tweaking Gov. Charlie Baker’s “workaround tax” that would allow pass-through corporations — including partnerships and limited liability companies — to get around a $10,000 cap on federal deductions for state and local taxes.

The proposal would create an optional “pass-through entity tax” allowing business owners to pay income taxes separately from personal tax returns. In turn, business owners would get credits for their federal income taxes.

In 2017, the federal government slashed the corporate tax rate from 35% to 21% and capped the amount of state and local taxes that individuals can deduct at $10,000 per year. The change had an outsized effect in high-tax states, such as Massachusetts, and on small business owners who “pass through” business income to their personal tax returns.

A report by the state Revenue Department said the Baker’s workaround would benefit about 50,500 tax filers, saving them nearly $1.2 billion in federal taxes.

The proposal unveiled by the Senate projects a similar level of tax savings for those affected, but it modifies the plan to make the it “revenue positive” for the state, Rodrigues said.

The bottom line, he said, would be about $90 million in revenue for the state next fiscal year.

Overall, the Senate budget doesn’t call for raising taxes or fees, and it boosts Chapter 70 education aid by $220 million, to more than $5.5 billion.

It would rely less on the state’s rainy day fund than a House budget, and it doesn’t call for tapping into federal pandemic relief funds.

Senate President Karen Spilka, D-Ashland, said the Senate’s plan is aimed at helping the state’s most vulnerable citizens recover from the pandemic.

“If the COVID-19 pandemic and its economic aftershocks have frayed the fabric of our commonwealth, this budget takes on the important but sometimes invisible work of stitching that fabric back together,” she said.

Lawmakers are expected to file dozens of amendments to the spending package before a Friday deadline.

The fiscal year begins July 1.

Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites. Email him at