The $1,400 coronavirus stimulus checks and the child tax credits might be grabbing most of the headlines these days—but know that cash-strapped parents could also be eligible to receive $8,000 or $16,000 for child care expenses.
Thanks to President Joe Biden’s $1.9 trillion American Rescue Plan, those who pay out of pocket for child care services in 2021 can eventually claim those expenses in tax credits up to $16,000—$8,000 for one child and the maximum for two or more children.
To qualify for the full tax credit, a household’s adjusted gross income must be below $125,000. If the income surpasses that amount, the tax credits will phase out at 50 percent—meaning that instead of receiving the full $8,000, these people will get $4,000.
The rate phases down again to 20 percent for individuals earning $183,000 and will stay at 20 percent until the income hits $400,000. Keep in mind that the rate completely phases out for those earning $438,000 or more.
Since one can’t claim the deduction until they file taxes next year, it is best to start gathering all the necessary forms to make the process easier. Any receipts, forms, or documents outlining what an individual paid toward nannies, babysitters, daycare, camps, and related transportation should be kept.
During the next tax season, eligible parents can then just complete Form 2441 and attach it to their tax returns.
Be aware that these child and dependent care credits are different from the expanded child tax credits, which will start being paid out to eligible families on July 15.
Through Biden’s legislation, these parents are able to collect as much as $3,600 per year for a child under the age of six and up to $3,000 for children between ages six and seventeen. Broken down further, this means that qualified parents can receive a $250 or $300 payment each month through the end of the year.
White House officials have said that the reach of the benefits will be expansive—estimating that households representing more than sixty-five million children, or nearly 90 percent of all children in the country, will receive the payments via direct deposit, paper checks, or debit cards.
“The American Rescue Plan is delivering critical tax relief to middle class and hard-pressed working families with children. With today’s announcement, about 90 percent of families with children will get this new tax relief automatically, starting in July,” Biden said in a prepared statement.
“While the American Rescue Plan provides for this vital tax relief to hard working families for this year, Congress must pass the American Families Plan to ensure that working families will be able to count on this relief for years to come. For working families with children, this tax cut sends a clear message: help is here,” he added.
Ethen Kim Lieser is a Minneapolis-based Science and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.