Good news for working families! If you pay out-of-pocket expenses for childcare, you can get up to $4,000 back for 1 child and up to $8,000 back for 2+ children. The expanded Child and Dependent Care Tax Credit can lower your tax bill and makes the credit fully refundable to ensure the lowest income households can benefit. It’s an important new tax break that helps you make up some of the costs of caring for children or dependents with disabilities.
Note: This tax credit is in addition to the Child Tax Credit. Learn the difference here >
Do I Qualify?
To qualify, you must have paid an eligible care provider for one or more of the following:
- Children age 12 and under you claim as a dependent on your tax return
- Your spouse (if that person is unable to take care of themselves and has lived in your home for at least half the year)
- Any additional person claimed as a dependent on your return, such as an elderly or disabled parent, who can’t take care of themselves and has lived in your home at least half the year
Who Can Claim the Credit
You may claim the credit if you (or you and your spouse if filing a joint tax return) pay a provider to care for one or more people who qualify so that you can work, look for work, or attend school, and your income level is within the income limits set for the credit. However, the credit amount decreases when the individual or household income reaches a certain income level.
Like most taxes, understanding eligibility and calculating the credit amount you are entitled to can be confusing. However, working families and individuals in Southeastern Pennsylvania and Southern New Jersey who need it most can avoid the confusion and get free professional help from an IRS-certified Campaign for Working Families (CWF) tax preparer.
Changes for the tax year 2021 (taxes you file in 2022):
- The amount of qualifying expenses increases from $3,000 to $8,000 for one qualifying person and from $6,000 to $16,000 for two or more qualifying individuals
- The percentage of qualifying expenses eligible for the credit increases from 35% to 50%. That means if you spent $8,000 in eligible child care expenses, you could receive up to $4,000 (50%) as a refundable credit.
- The beginning of the reduction of the credit increased from $15,000 to $125,000 of adjusted gross income (AGI)
- The maximum amount you can contribute to a dependent care flexible spending account and the amount of tax-free employer-provided dependent care benefits is increased from $5,000 to $10,500
The Child and Dependent Care Credit is a tax credit rather than a tax deduction (see the differences here). This tax credit directly lowers your taxes, dollar for dollar, reducing the amount of taxes you owe right from the beginning. For example, a $1,000 tax credit cuts your tax bill by $1,000. And, new for this year, you can receive up to 50% of your expenses back in the form of a refund.
Restrictions on Who Can Provide Care
You can claim the credit for the money you paid for care if the person you paid is not one of the following people:
- Your spouse
- A parent of the child receiving care. For example, you can’t claim the credit if you pay your ex-husband or ex-wife to care for a child you have together
- Any person listed as a dependent on your tax return
- Your child, 18 or younger, regardless of whether they are listed as a dependent on your tax return. For example, you couldn’t pay your 17-year-old child to care for their eight-year-old sibling and then claim the credit.
CWF Can Help You Benefit from the Child and Dependent Care Tax Credit!
Get FREE, professional help from an IRS-certified tax professional at CWF to take advantage of this opportunity to lower your tax bill and increase your refund! Child care and dependent care have been especially difficult for families over the past couple of years, and this is a great way to help you recoup some of your hard-earned money.
Thanks to the efforts of President Biden and Congress, the American Rescue Plan Act of 2021 (enacted March 11) included this credit which is significantly more generous than in the past and potentially refundable so you might not have to owe taxes to claim the credit. You only need to meet the requirements. Join the nearly 50,000 individuals who depended on CWF last year to help receive tax benefits.