Child Care and Dependents Credit: How to Recover $ 8,000 or $ 16,000 for Expenses

Do you pay for child care? If so, you can use the child care and dependents credit to claim up to $ 16,000 in tax credits, which includes child care, child care and transportation costs. . This is in addition to the money you can receive from child tax credit payments, for which you can get up to $ 3,600 through qualified dependent.

You can claim up to 50% of these child care expenses if your income qualifies you – the amount you can claim is $ 8,000 for one child and $ 16,000 for two or more children. While this might not be the most flamboyant part of the American rescue plan adopted in March, this could be one of the most important benefits for families.

But you need to start collecting information now to make sure you don’t miss out on any cash when you file your taxes next year. We will explain how these child care tax credits work below. We also made some suggestions on how you could use the extra money and what you need to know about the IRS Child Tax Credit Portals. Also find out how see if your state owes you money.

The child care and dependents credit: everything you need to know

The child care and dependents credit is designed so that parents can claim child care expenses throughout the year, for example, if you are working and paying for services such as child care or a baby. sitter for your children. These expenses can be claimed when you file your taxes each year.

The amount you can get from the expanded child care credit has changed for accrued expenses in 2021. For example, the maximum amount you could claim for multiple children in previous years was $ 6,000 (now it’s $ 6,000). is $ 8,000). Under the new stimulus law of March 2020, you can now claim up to $ 16,000 in child care expenses for multiple children.

Are there specific child care expenses eligible for the credit?

The law defines spending based on childcare suppliers, but there is room for maneuver that also takes into account expenses such as transport. The key is that any organization or person who cares for your dependent counts as a child care provider as long as you pay them.

The IRS has relatively relaxed rules on health care providers, according to Elaine Maag, senior research associate at the Urban Institute. However, you may have a better chance of claiming childcare credits for people and groups that function in an official capacity, like your town’s summer camp program, than giving to a neighborhood teenager. $ 40 to watch your child for a few hours.

Qualified care providers

What is admissible	What is not admissible
Care expenses	Your partner
Before and after school care programs	The dependent’s parent
Day camp	Your children
Transport to and from healthcare providers	Babysitters paid “under the table” *
Babysitters, nannies, housekeepers

* Parents who pay their babysitters in cash “under the table” should be aware that it is risky to claim child care tax credits since the income may not be claimed or documented by the provider.

How you will claim child care and dependents’ expenses on your taxes in 2022

You will not claim the deduction until you file your 2021 taxes next year (in 2022). For now, keep a detailed account of all childcare expenses – that is, all receipts you receive from daycares or after-school programs showing the expenses you paid. Then you will finish Form 2441 and tie it to your Form 1040 tax return.

According to the IRS, you will need to report the name, address, and TIN (this can be a Social Security number or Employer ID number) of the care provider when you return. You can use Form W-10 to get the information you need from your healthcare provider.

Note that the child and dependents credit form is integrated into tax software such as TurboTax and H&R block. For example, it may ask you if you have a child under the age of 13 and if you paid for child care during the year.

Amount of expenses you can claim per child for the child care credit

For expenses accrued in 2021, under the American Rescue Plan Act, you can claim up to $ 8,000 for a child or up to $ 16,000 for multiple dependents, according to Garrett Watson, senior policy analyst at the Tax Foundation. Normally, parents cannot claim up to $ 3,000 for a child or up to $ 6,000 for two or more children.

It’s different from 2021 child tax credit– these extended payments start this year. As of July, you can receive between $ 500 and $ 3,600 in payments.

Income limits and eligibility requirements: here’s what you need to know

To be entitled to the tax credit for children and dependents, a household adjusted gross income must be less than $ 125,000. If your income exceeds this amount, your tax credits will gradually disappear to 50%. For example, instead of receiving the full $ 8,000, you would be entitled to $ 4,000. The credit rate decreases again to 20% for those with an AGI of $ 183,000, and remains at 20% until income reaches over $ 400,000.

The credit rate ends up disappearing completely for families earning $ 438,000 or more.

With the original child care tax credits, the credit rates would gradually decrease to 35% if income exceeded $ 125,000 and to 25% if combined household income exceeded $ 183,000.

Eligibility rules for your dependents

According to the IRS, the eligibility rules for dependents are quite broad. To be eligible, dependents must:

• Be under 13, or
• Unable to care for themselves if you are 13 years of age or older (for example, if you have an older spouse or dependent who is disabled and unable to care for themselves – and has lived with you for more than half of the year – you can claim the credits for them), or
• Being physically or mentally unable to take care of themselves – even if their income was $ 4,300 or more – and
• Have a tax identification number, such as a social security number.

Here’s what separated and divorced parents need to know to claim the child care tax credit next year

Only the parent with primary custody can claim the child care tax credit. The rules are similar to those governing the child and shared custody tax credit.

If you’re married, both parents must work – or receive unemployment benefits – to qualify for the credit, Maag said. Plus, if you’re in school, you can still get credit.

For more ways to make money this year, here is how you could save up to $ 50,000 with unique COVID credits and benefits in 2021. Also here is how to opt out of monthly child tax credit payments.