Just as the IRS prepares to issue the monthly child tax credit payments that will start going out in July, some parents are looking to get additional coronavirus relief through the child and dependent care credits featured in the American Rescue Plan.
The care credits allow parents to claim up to 50 percent of child care-related expenses like daycare, nannies, camp, and transportation costs. They can claim up to $8,000 for one child and $16,000 for two or more dependents.
The child and dependent care credit was crafted for parents to claim child care-related expenses throughout an entire year, so it is encouraged to start gathering information now to fully claim the credit for next year
In the past, the maximum amount that a parent could claim for multiple children was $6,000. Under President Joe Biden’s relief package, parents can see up to $16,000 in child care expenses for more than one child—and that still excludes any child tax credit payments.
It’s still unclear what child care expenses qualify for the massive tax relief due to the law’s wonky rules. But, the key component of an expense is that it must provide care for the dependent as long as it’s being paid for.
The IRS has reportedly eased their guidance over what qualifies, according to a research associate at the Urban Institute, but parents will likely have a stronger chance of writing off a daycare program than a babysitter who’s watched their kid for a few hours.
Another change to the credit is that it is fully refundable.
“This means that an eligible family can get it, even if they owe no federal income tax,” the IRS said.
But the child and dependent care credit can’t be claimed until parents file their 2021 taxes, so economists have suggested maintaining a file of all child care expenses including receipts and other forms of documentation. Then, parents will complete Form 2441 and attach it to the Form 1040 tax return.
Households who are eligible for the tax credit must have an adjusted gross income of up to $125,000. If the income is above that threshold, then the tax credits will phase out at 50 percent. So, instead of receiving the full $8,000 for one child, the household would get $4,000.
Rachel Bucchino is a reporter at the National Interest. Her work has appeared in The Washington Post, U.S. News & World Report and The Hill.