Providing a graduated phase-out promotes continuity by allowing for wage growth and a tapered transition out of the child care subsidy program. It supports long-term financial stability to help families get to a point where they no longer need the subsidy. Sudden withdrawal of support can destabilize and undermine a family’s pathway to financial stability. [1]

Unless its initial eligibility threshold is set at 85 percent of state median income (SMI), a Lead Agency must have procedures for a graduated phase-out of assistance for a family whose income at redetermination exceeds the initial eligibility limit but is still less than 85 percent SMI.

A graduated phase-out of assistance is achieved by establishing two tiers of eligibility: an initial income eligibility amount and a second income eligibility threshold at the time of redetermination. The second tier can be set at 85 percent of SMI or a lower amount so long as it’s above the initial eligibility threshold. If the state opts to set the second tier at an amount lower than 85 percent of SMI, the following requirements apply:

• The threshold must account for the typical household budget of a low-income family.
• The Lead Agency must provide justification that the second eligibility level is sufficient to accommodate increases in family income over time that are typical for low-income workers; that it takes into account typical family expenses such as housing, food, health care, diapers, and transportation; and that it promotes and supports family economic stability and reasonably allows families to continue accessing child care services without unnecessary disruption.

States may adjust copayments for families during the graduated phase-out period to create a gradual shift in how families must adjust their budgets to cover the full cost of care once they are no longer receiving a subsidy. States should consider how to do this in a way that minimizes paperwork and reporting burdens on working families.

[1]Office of Child Care. (2016). Child Care and Development Fund final rule frequently asked questions. U.S. Department of Health and Human Services, Administration for Children and Families. https://www.acf.hhs.gov/occ/faq/child-care-and-development-fund-final-rule-frequently-asked-questions