This year, a child care tax credit has more than doubled: Learn how to pay up to $16,000
The amount of child-care expenses you can claim for last year is 266% higher than previously.
This tax season officially begins January 24, and significant changes in the way parents and caregivers might see a substantial increase in their tax refunds this year. The child and dependent care credit is available to taxpayers only for day care, babysitters, or care-related transportation for children or dependents.
Parents who paid for child care in 2021 will be eligible for up to 50% of their child care expenses back as a tax break or refund. The amount of tax credit you'll be able to claim maxes out at $8,000 for one dependent and $16,000 for two or more.
Below we'll explain how this child care tax credit works. This story was recently updated.
What is the child and dependent care credit?
When you file your taxes this year, the child and dependent care credit is a tax break intended to permiss parents to claim expenses from child care.
How is the child care credit different for tax credits in 2021? In previous years, the maximum amount you could claim was $3,000 for one child or $6,000 for two or more children. For example, you can claim up to $8,000 for one child or dependent and up to $16,000 for multiple children.
What does that mean? For the 2021 tax year, you might get up to $4,000 back for one child and $8,000 back for two or more years.
Before the American Rescue Plan, the child and dependent care credit was nonrefundable, meaning it could reduce your tax bill to zero, but you would not receive a refund on anything extra. Now,, meaning that you will receive money for it even if you don't pay taxes.
What is considered to be an eligible expenses for the child care credit?
Every organization or person that provides care for your dependent does not count as long as you pay them. (For example, a spouse or a unpaid relative does not count.)
According to Elaine Maag, the IRS has relatively strict rules about care providers. Nevertheless, you'll likely have more luck obtaining child care credit for people and groups operating in an official capacity, such as nursery schools and day care centers, opposed to the $40 you paid a teenager to watch your child for an afternoon.
Qualified care providers are a must-have.
|What qualifies||What doesn't qualify|
|Day care expenses||Your spouse|
|Before- and after-school care programs||The dependent's parent|
|Day camp||Your children|
|Transportation to and from care providers||Babysitters paid "under the table"*|
|Babysitters, nannies, housekeepers|
*Parents who pay their babysitters cash "under the table" should know that it's dangerous to claim the child care tax credit, given that the income may not be claimed or documented by the provider.
How do I claim child care expenses on my taxes?
Before the tax day approaches, make sure you have a proper account of all child care expenses, plus any receipts from day care or after-school programs showing your expenses.
According to the IRS, you'll need to provide the name, address, and "taxpayer identification number" or TIN (it can be a Social Security number or the employer identification number) of the care provider on your return.
This child and dependent care credit form is implemented in tax software like 'the Child Care Credit Form,' which may include a child under the age of 13 and a child care credit program.
To claim the child care credit, you'll require detailed records of expenses and receipts.
What's the maximum amount I can claim for child care expenses?
For expenses forecasted in 2021, you can claim up to $8,000 in eligible expenses for one dependent or up to $16,000 in eligible expenses for multiple dependents.
If you're eligible for the child tax credit and didn't receive advance payments, you can receive between $500 and $3,600 per child as credit when you file your taxes.
Is my income affecting how much do I need to claim or return?
If you are married and filing a joint tax return, your spouse must also have earned income. ( to full-time students and people receiving disability benefits). The IRS advises that you do not have to take the child care credit.
The amount of claimable child care expenses, ranging from $8,000 to $16,000 for two or more children, is not affected by the income level.
The credit rate for the 2021 tax year begins to decrease when a taxpayer's income or household AGI (adjusted gross income) reaches $125,000. The credit rate is reduced by 1% for every $2,000 earned over $125,000, up until $183,000, with the credit rate settled at 20% for anyone earning $183,001-$400,000.
For those earning more than $400,000, the credit rate rises by 1% for every $2,000 earned over $400,000, reducing the percentage of households earning $438,000 or more. An AGI of $410,000 would receive a tax credit rate of 15%.
Which dependents are eligible to be included in the child care credit?
, eligibility guidelines for dependents are fairly broad, but a dependent must comply with one of the following criteria:
- Be under the age of 13, or
- Be unable to care for themselves if 13 or older (for example, if you have a spouse or older dependent who is impaired and incapable of caring for themselves, and has lived with you for more than half the year, or
- Be physically or mentally incapable of self-care -- even if their income was $4,300 or more.
A qualified dependent must have a tax identification number, such as a Social Security number.
What should I know if I am separated or divorced?
The IRS has defined the custodial parent as the parent with whom the child stayed for the greater number of nights in 2021.