That’s why financial experts are trying to get the word out regarding a sizable tax credit that many Americans might not be aware of. Green-lighted via President Joe Biden’s American Rescue Plan last spring, it is known as the Child and Dependent Care Tax Credit.
If a parent meets all of the eligibility requirements, one could be on the receiving end of a whopping $8,000. The maximum amount would be 50 percent of their total child care expenses, which can be up to $16,000 for two or more children. Moreover, it’s important to note that the credit is fully refundable, which means that even if an individual has no tax liability, they could still receive the credit in the form of a refund.
‘Bigger Tax Break’
“Along with some other tax changes, [this credit] was expanded in several ways. The upshot is that many households will get a bigger tax break, and the credit could reach more people than it has before,” CNBC writes.
“In other words, it’s worth checking whether you qualify even if you were unable to get the tax break in the past,” the article says, citing advice from Henry Grzes, lead manager for tax practice and ethics with the American Institute of CPAs.
It’s important to note that people with adjusted gross incomes of more than $438,000 are not eligible for these credits even though they may have previously been able to claim them. The credit amount also begins to phase out when a taxpayer’s income reaches $125,000.
This is a “tax credit that may help you pay for the care of eligible children and other dependents (qualifying persons). The credit is calculated based on your income and a percentage of expenses that you incur for the care of qualifying persons to enable you to go to work, look for work, or attend school,” the Internal Revenue Service writes on its website.
To be eligible for the credits, the IRS outlines that you have “a child under the age of 13 who is your dependent” and “a spouse or dependent of any age who can’t care for themselves and who lives with you for more than six months of the year.”
Getting the Credits
When filing their taxes this year, parents need to make sure to have in hand all receipts, forms, or documents outlining how much was spent directly on child care. They also need to complete Form 2441 and attach it to their tax return before sending it off to the IRS.
“You must identify all persons or organizations that provided care for your child, dependent, or spouse,” the IRS says. “To identify the care provider, you must give the provider’s name, address, and taxpayer identification number (TIN).”
Ethen Kim Lieser is a Washington state-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.