Childcare tax credit more than doubled this year: find out how to claim up to $16,000

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The amount of child care expenses you can claim last year is 266% higher than before.

Sarah Tew/CNET

Tax season officially begins on January 24 and big changes to the credit for children and dependents means parents and caregivers could see a big increase in their tax refunds this year. The child care and dependent care credit allows taxpayers to deduct expenses related to the care of children or dependents as a direct reduction in their federal taxes. It applies to costs for child care, babysitting or transportation related to the care of children or dependents.

Thanks to a one-time credit expansion in the American Rescue Plan Act, parents who paid for childcare in 2021 can receive up to 50% of their childcare costs as tax relief or reimbursement. The amount of tax credit you can claim is $8,000 for one dependent and $16,000 for two or more. The problem? You will need all of your receipts and other monetary proof to ensure that you can claim the tax relief when you file your tax return.

We explain below how this tax credit for childcare expenses works. This story was recently updated.

What is the child and dependent care credit?

The Child and Dependent Credit is a tax break designed to allow parents to deduct child care expenses. For example, if you paid for a child care provider while you were working, that expense can be claimed as a credit when you file your taxes this year.

How is the child care credit different for 2021 taxes? In previous years, the maximum amount you could claim was $3,000 for one child or $6,000 for two or more children. For 2021 expenses, you can claim up to $8,000 for one child or dependent and up to $16,000 for multiple children. The one-time child care credit expansion for 2021 also increases the maximum rate of return for child care expenses from 35% to 50%.

What does it mean? In short, for the 2021 tax year, you could recover up to $4,000 for one child and $8,000 for custody of two or more children.

Before the US bailout, the child and dependent credit was non-refundable, meaning it could reduce your tax bill to zero, but you wouldn’t get a refund on anything more. . Now, the credit is fully refundable, which means you’ll get money even if you don’t owe taxes.


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Child tax credit: everything we know


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What is an eligible expense for the child care expense credit?

The law defines expenses based on child care suppliers, but there is some wiggle room that also takes into account expenses like transportation. Any organization or person caring for your dependent counts as long as you pay them. (For example, an unpaid spouse or relative does not count.)

The IRS has relatively relaxed rules regarding healthcare providers, according to Elaine Maag, senior research associate at the Institute. Urban Institute. However, you’ll likely have better luck claiming child care credits for people and groups operating in an official capacity, like preschools and daycare centers, as opposed to the $40 you paid a teenager to babysit. your child for an afternoon.

Skilled care providers

What qualifies

What is not eligible

Care expenses

Your partner

Before and after school care programs

Dependent’s parent

Day camp

your children

Transportation to and from healthcare providers

Babysitters paid “under the table”*

Babysitters, nannies, housekeepers

*Parents who pay their babysitters in “under the table” cash should be aware that claiming the childcare tax credit is risky since the income may not be claimed or documented by the provider.

How do I report child care expenses on my taxes?

Make sure you have an itemized account of all childcare expenses – especially any receipts you’ve received from daycare or after-school programs showing your expenses. As tax day approaches, complete Form 2441 and attach it to your Form 1040 tax return.

According to the IRS, you will need to report the name, address, and “tax identification number” or TIN (this can be a social security number or employer identification number) of the care provider when you report. You can use Form W-10 to request the information you need from your healthcare provider.

Note that the Child and Dependent Credit form is integrated with tax software such as TurboTax and H&R Block. These programs will ask you if you have a child under the age of 13 and if you paid child care expenses during the year in order to calculate your child care expense credit.

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You will need itemized expense statements and receipts to claim the child care expense credit.

Sarah Tew/CNET

What is the maximum amount I can claim for child care expenses?

For expenses recognized in 2021, the The taxman says you can claim up to $8,000 of eligible expenses for one dependent or up to $16,000 of eligible expenses for multiple dependants.

Keep in mind that the Child and Dependent Credit is not the same as the Child Tax Credit of the same name. Advance child tax credit payments were paid monthly last year. If you qualify for the child tax credit and you did not receive advance payments, you may receive between $500 and $3,600 per child as a credit when you file your taxes.

Does my income affect how much I can claim or recover?

To qualify for the child care expense credit, a filer must have earned income, such as wages from employment or unemployment. If you are married and filing a joint tax return, your spouse must also have earned income. (Exemptions apply full-time students and people receiving disability benefits.) The IRS says that generally you can not take the child care credit if you are married and file separately.

The maximum amount of deductible child care expenses — $8,000 for one child or $16,000 for two or more — is not affected by income level. However, the rate of return on the child care credit declines as income increases.

For the 2021 tax year, the rate of the credit 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 above $125,000, up to $183,000, where it is 20% for anyone earning between $183,001 and $400. $000. For example, an AGI of $145,000 would receive a tax credit rate of 40%.

For those earning more than $400,000, the credit rate decreases again by 1% for each $2,000 earned above $400,000 and becomes zero for families earning $438,000 or more. For example, an AGI of $410,000 would receive a tax credit rate of 15%.

Which dependents can be included in the child care expense credit?

According to the tax, the eligibility rules for dependents are quite broad, but a dependent must meet one of the following criteria:

  • Be under the age of 13, or
  • Being unable to care for themselves if they are 13 or older (for example, if you have an elderly spouse or dependent who is debilitated and unable to care for themselves and has lived with you for more than half the year, or
  • Being physically or mentally incapable of caring for yourself, even if your income was $4,300 or more.

Additionally, the eligible dependent must have a tax identification number, such as a social security number.

What should I know if I am separated or divorced?

Only the custodial parent can claim the child care expense credit on their taxes. The IRS defines the custodial parent as the parent with whom the child lived the most nights in 2021. The rules for separated or divorced parents are similar to those governing the child and shared custody tax credit.



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