HB 2706

                                                  PRINTER'S NO.   3782
                THE GENERAL ASSEMBLY OF PENNSYLVANIA
                    HOUSE BILL
                    No. 2706
                                            Session of
                                              2026
INTRODUCED BY SHUSTERMAN, T. DAVIS, HILL-EVANS, MAYES, GUZMAN,
   KHAN, PARKER, SANCHEZ, OTTEN, D. WILLIAMS, FREEMAN, McANDREW,
   RIVERA, BOROWSKI, GUENST, HANBIDGE, CARROLL, TIBURCIO, HOWARD
   AND STEELE, JULY 16, 2026
REFERRED TO COMMITTEE ON FINANCE, JULY 16, 2026
                                AN ACT
1 Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
2    act relating to tax reform and State taxation by codifying
3    and enumerating certain subjects of taxation and imposing
4    taxes thereon; providing procedures for the payment,
5    collection, administration and enforcement thereof; providing
6    for tax credits in certain cases; conferring powers and
7    imposing duties upon the Department of Revenue, certain
8    employers, fiduciaries, individuals, persons, corporations
9    and other entities; prescribing crimes, offenses and
10    penalties," establishing the Pennsylvania Child and Dependent
11    Care Enhancement Tax Credit Program; and making a repeal.
12    The General Assembly of the Commonwealth of Pennsylvania
13 hereby enacts as follows:
14    Section 1.     The act of March 4, 1971 (P.L.6, No.2), known as
15 the Tax Reform Code of 1971, is amended by adding an article to
16 read:
17ARTICLE XIX-L
18PENNSYLVANIA CHILD AND DEPENDENT
19CARE ENHANCEMENT TAX CREDIT PROGRAM
20 Section 1901-L.    Scope of article.
21    This article relates to the Pennsylvania Child and Dependent
1 Care Enhancement Tax Credit Program.
2 Section 1902-L.    Definitions.
3    The following words and phrases when used in this article
4 shall have the meanings given to them in this section unless the
5 context clearly indicates otherwise:
6    "Applicable percent."
7(1)   For taxable years ending before January 1, 2027, as
8    defined in section 21(a)(2) of the Internal Revenue Code of
9    1986 in effect for the taxable years beginning after December
10    31, 2021, and ending before January 1, 2023.
11(2)   For taxable years beginning after December 31, 2026,
12    as defined in section 21(a)(2) of the Internal Revenue Code
13    of 1986, as amended.
14    "Department."    The Department of Revenue of the Commonwealth.
15    "Employment-related expenses."  As defined in section 21(b)
16 (2) of the Internal Revenue Code of 1986.
17    "Internal Revenue Code of 1986."        The Internal Revenue Code
18 of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.).
19    "Qualifying individual."       As defined in section 21(b)(1) of
20 the Internal Revenue Code of 1986.
21    "Resident individual."    An individual who meets any of the
22 following criteria:
23(1)   Is domiciled in this Commonwealth, unless the
24    individual maintains no permanent place of abode in this
25    Commonwealth and does maintain a permanent place of abode
26    elsewhere and spends in the aggregate no more than 30 days of
27    the taxable year in this Commonwealth.
28(2)   Is not domiciled in this Commonwealth, but maintains
29    a permanent place of abode in this Commonwealth and spends in
30    the aggregate more than 183 days of the taxable year in this
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1    Commonwealth.
2    "Section 21 of the Internal Revenue Code of 1986."        Section
3 21 of the Internal Revenue Code of 1986 (Public Law 99-514, 26
4 U.S.C. § 21).
5    "Tax credit."        The Pennsylvania child and dependent care
6 enhancement tax credit provided for under this article.
7    "Tax liability."        The liability for taxes imposed under
8 Article III, excluding any tax withheld by an employer under
9 Article III of the Tax Reform Code of 1971.
10    "Taxable year."        As defined in section 301.
11    "Taxpayer."        A resident individual subject to the tax imposed
12 under Article III.
13 Section 1903-L.        Credit for child and dependent care employment-
14related expenses.
15    (a)   Tax credit.--For taxable years beginning after December
16 31, 2021, a taxpayer who receives a credit under section 21 of
17 the Internal Revenue Code of 1986 may claim a tax credit against
18 the taxpayer's tax liability.
19    (b)   Amount of tax credit.--The amount of the tax credit
20 under subsection (a) for the taxable year beginning after
21 December 31, 2021, and ending before January 1, 2023, shall be
22 equal to 30% of:
23(1)   the actual amount of employment-related expenses
24    incurred by the taxpayer and claimed for the Federal tax
25    credit under section 21 of the Internal Revenue Code of 1986
26    during the prior taxable year or the following, as
27    applicable, whichever is less:
28(i)    $3,000 for one qualifying individual with
29respect to the taxpayer; or
30(ii)    $6,000 for two or more qualifying individuals
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1with respect to the taxpayer; multiplied by
2(2)   the applicable percent, with respect to the
3    taxpayer, in effect for the taxable year beginning after
4    December 31, 2021, and ending before January 1, 2023.
5    (c)   Amount of tax credit in taxable years before January 1,
6 2027.--The amount of the tax credit under subsection (a) for
7 taxable years beginning after December 31, 2022, and ending
8 before January 1, 2027, shall be equal to 100% of:
9(1)   the actual amount of employment-related expenses
10    incurred by the taxpayer and claimed for the Federal tax
11    credit under section 21 of the Internal Revenue Code of 1986
12    during the prior taxable year or the following, as
13    applicable, whichever is less:
14(i)    $3,000 for one qualifying individual with
15respect to the taxpayer; or
16(ii)    $6,000 for two or more qualifying individuals
17with respect to the taxpayer; multiplied by
18(2)   the applicable percent, with respect to the
19    taxpayer, in effect for the taxable year beginning after
20    December 31, 2021, and ending before January 1, 2023.
21    (d)   Amount of tax credit for taxable years beginning after
22 December 31, 2026.--The amount of the tax credit under
23 subsection (a) for taxable years beginning after December 31,
24 2026, shall be equal to 100% of:
25(1)   the actual amount of employment-related expenses
26    incurred by the taxpayer and claimed for the Federal tax
27    credit under section 21 of the Internal Revenue Code of 1986
28    during the prior taxable years or the following, as
29    applicable, whichever is less:
30(i)    $3,000 for one qualifying individual with
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1respect to the taxpayer; or
2(ii)   $6,000 for two or more qualifying individuals
3with respect to the taxpayer; multiplied by
4(2)   the applicable percent, with respect to the
5    taxpayer, in effect for the taxable year in which the
6    taxpayer seeks the tax credit.
7    (e)   Claim of tax credit.--A taxpayer shall claim a tax
8 credit under this section on a return filed under section 330.
9    (f)   Applicability of tax credit.--The tax credit under this
10 section shall be applied against the taxpayer's tax liability.
11 If the tax credit exceeds the taxpayer's tax liability, the
12 department may issue a refund under the procedures specified in
13 section 346.
14 Section 1904-L.       Prohibitions.
15    The following apply:
16(1)   A taxpayer is not entitled to carry over, carry back
17    or sell, assign or transfer a tax credit under this article.
18(2)   A taxpayer may not claim a tax credit for the same
19    employment-related expenses used to claim a tax credit on a
20    return filed by another taxpayer.
21 Section 1905-L.       Application of Internal Revenue Code of 1986.
22    The provisions of section 21 of the Internal Revenue Code of
23 1986, as amended, and any Federal regulations promulgated
24 regarding those provisions, shall apply to the department's
25 interpretation and administration of the tax credit provided for
26 under this article.
27 Section 1906-L.       Departmental duties.
28    The department shall publish guidelines and may promulgate
29 regulations necessary for the implementation and administration
30 of this article.
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1 Section 1907-L.    Report to General Assembly.
2    (a)   Annual report.--No later than March 1, 2024, and each
3 March 1 thereafter, the department shall submit a report to the
4 General Assembly indicating the effectiveness of the tax credit
5 under this article.
6    (b)   Information required.--The report required under
7 subsection (a) shall include, but not be limited to, the
8 following information:
9(1)   The number of tax credits approved under this
10    article.
11(2)   The amount of tax credits approved under this
12    article.
13(3)   The amount of tax credits claimed under this
14    article.
15(4)   The amount of tax credits refunded under this
16    article.
17    Section 2.     Repeals are as follows:
18(1)   The General Assembly declares that the repeal under
19    paragraph (2) is necessary to effectuate the addition of
20    Article XIX-L of the act.
21(2)   Article XVI-W of the act of April 9, 1929 (P.L.343,
22    No.176), known as The Fiscal Code, is repealed.
23    Section 3.     The addition of Article XIX-L of the act is a
24 continuation of Article XVI-W of the act of April 9, 1929
25 (P.L.343, No.176), known as The Fiscal Code. The following
26 apply:
27(1)   Except as otherwise provided in Article XIX-L of the
28    act, all activities initiated under the Article XVI-W of The
29    Fiscal Code shall continue and remain in full force and
30    effect and may be completed under Article XIX-L of the act.
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1  Orders, regulations, rules and decisions which were made
2  under Article XVI-W of The Fiscal Code and which are in
3  effect on the effective date of section 2 of this act shall
4  remain in full force and effect until revoked, vacated or
5  modified under Article XIX-L of the act. Contracts,
6  obligations and collective bargaining agreements entered into
7  under Article XVI-W of The Fiscal Code are not affected nor
8  impaired by the repeal of Article XVI-W of The Fiscal Code.
9      (2)   Except as specified in paragraph (3), any difference
10  in language between Article XIX-L of the act and Article XVI-
11  W of The Fiscal Code is intended only to conform to the style
12  of Article XIX-L of the act and is not intended to change or
13  affect the legislative intent, judicial construction or
14  administration and implementation of Article XVI-W of The
15  Fiscal Code.
16      (3)   Paragraph (2) does not apply to the following
17  provisions:
18(i)    The addition of the definition of "applicable
19      percent" in section 1902-L of the act.
20(ii)    The addition of sections 1903-L(c) and (d) and
21      1905-L of the act.
22(iii)    The removal of section 1605.1-W of The Fiscal
23      Code from Article XIX-L of the act.
24  Section 4.      This act shall take effect immediately.
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