Repeal of 1.5% cap is only temporary, State of Vermont promises

By Guy Page

The 2023 Legislature passed Act 76, the state-funded childcare bill, with a payroll tax designed to raise $120 million per year.

To soften the blow, it also created a cap on annual childcare tuition. Capping the cost of childcare by 1.5% annually would help overwhelmed young parents, thus justifying a new payroll tax, supporters said. 

At least that was the concept. 

But the 2024 Legislature (the same elected body as 2023, with a few exceptions due to death and resignation) in May passed Act 113, which (temporarily, the state says) repealed the cap on child care tuition increases. 

Thanks to Act 113, the 1.5% cap will take effect on July 1, 2025. This means that there is no annual tuition rate increase cap in effect from May 22, 2023 to June 30, 2025, the Department of Children and Families said in an August 1 statement. 

The payroll tax, expected to collect about $120 million per year, began July 1 and is proceeding as planned – collecting .44% in wages (employer and employee combined) and .11 in self-employment compensation. That fraction is by no means fixed. Act 76 said the payroll tax will be adjusted annually according to the needs of the program. 

Any communications or notices related to the tuition rate increase caps from the Child Development Division from 2023 are no longer in effect, DCF said. 

Next spring, the state will calculate the new tuition increase rate cap as directed by the law and notify programs of that change. As prescribed in statute, the amount will be 1.5 times the percentage change of the most recent Employment Cost Index, for March 2025, the DCF statement said.

Act 76 passed in 2023 despite a veto by Gov. Phil Scott, who said taxpayers should not be subjected to further taxation when an alternative voluntary childcare funding program was available. The Legislature overrode the veto.