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    Money from the child care credit nearly quadruples this tax season: What you need to know



    The efficient improve within the worth of the kid and dependent care tax credit score is about 381%.

    Sarah Tew/CNET

    Monday, Jan. 24 marks the beginning of this 12 months’s tax season. Mother and father can count on to get the remainder of their child tax credit money after they file their return, however that is not the one huge enhance for fogeys this season. 

    A wholly totally different tax break, known as the child and dependent care credit, has additionally been vastly expanded, with the utmost efficient return on the credit score growing to $4,000 for one baby or $8,000 for 2 or extra. In prior years, the utmost returns had been $1,050 and $2,100, respectively.

    The kid and dependent care credit score permits taxpayers to instantly cut back their taxes by the quantity spent on bills associated to baby or dependent care, reminiscent of day care, babysitters or associated transportation.

    Due to a one-time expansion in the American Rescue Plan Act, dad and mom who paid for baby care in 2021 can declare $8,000 in bills for one dependent or $16,000 for a number of. The return price on baby care bills was additionally elevated from 35% to 50%.

    The catch? You will want all of your receipts and different financial proof to ensure you can declare the tax break if you file your revenue tax return. 

    We’ll clarify how the kid care tax credit score works beneath. For more information in your taxes in 2022, examine easy methods to get the rest of your expanded child tax credit money, 9 tax myths to avoid and 13 lesser-known tax deductions and credits.

    What is the baby and dependent care credit score?

    The kid and dependent care credit score is a tax break designed to let dad and mom declare bills from baby care. For instance, if you happen to paid for a day care supplier when you had been working, that expense might be claimed as a credit score if you file your taxes this 12 months.

    How is the kid care credit score totally different for 2021 taxes? In earlier years, the utmost quantity you might declare was $3,000 for one baby or $6,000 for 2 or extra. For 2021 bills, you’ll be able to declare as much as $8,000 for one baby or dependent and as much as $16,000 for a number of youngsters. The onetime enlargement of the kid care credit score for 2021 additionally will increase the utmost return price for baby care bills from 35% to 50%.

    What does that imply? Briefly, for the 2021 tax 12 months, you might stand up to $4,000 again for one baby and $8,000 again for care of two or extra. In prior years, the utmost return for the credit score was $1,050 for one baby or $2,100 for 2 or extra. That is a 381% improve!

    Earlier than the American Rescue Plan, the kid and dependent care credit score was nonrefundable, that means it might cut back your tax invoice to zero however you wouldn’t obtain a refund on something additional. Now, the credit is fully refundable, that means that you’ll obtain cash for it even if you happen to do not owe taxes. 

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    What counts as a qualifying expense for the child care credit?

    The law defines expenses based on child care providers, but there’s some wiggle room that also accounts for expenses like transportation. Any organization or person providing care for your dependent counts as long as you’re paying them. (For example, a spouse or unpaid relative doesn’t count.)

    The IRS has relatively relaxed rules about care providers, according to Elaine Maag, principal research associate at the Urban Institute. However, you’ll likely have better luck claiming child care credits for people and groups operating in an official capacity, such as nursery schools and day care centers, opposed to the $40 you paid a teenager to watch your child for an afternoon.

    Qualified care providers

    What qualifies What doesn’t qualify
    Day care expenses Your spouse
    Before- and after-school care programs The dependent’s parent
    Day camp Your children
    Transportation to and from care providers Babysitters paid “under the table”*
    Babysitters, nannies, housekeepers

    *Parents who pay their babysitters cash “under the table” should know it’s risky to claim the child care tax credit since the income may not be claimed or documented by the provider.

    How do I claim child care expenses on my tax return?

    Make sure you have a detailed account of all child care expenses — most importantly any receipts you received from day cares or after-school programs showing your expenses. When tax day approaches, complete Form 2441 and attach it to your Form 1040 tax return. 

    According to the IRS, you’ll need to report the name, address and “taxpayer identification number” or TIN (it can be a Social Security number or the employer identification number) of the care provider on your return. You can use Form W-10 to request the information you need from your care provider.

    Note that the child and dependent care credit form is built into tax software such as TurboTax and H&R Block. Those programs will ask if you have a child under age 13 and if you paid for child care during the year in order to calculate your child care credit.


    You’ll need detailed records of expenses and receipts to claim the child care credit. 

    Sarah Tew/CNET

    What’s the maximum amount I can get back for child care expenses?

    For expenses accrued in 2021, the IRS says you can claim up to $8,000 in eligible expenses for one dependent or up to $16,000 in eligible expenses for multiple dependents.

    Keep in mind that the child and dependent care credit is not the same as the similarly named child tax credit. Advance child tax credit payments were disbursed on a monthly basis last year. If you’re eligible for the child tax credit and didn’t receive advance payments, you can receive between $500 and $3,600 per child as credit when you file your taxes. 

    Does my income affect how much money I can claim or get back?

    To qualify for the child care credit, a tax filer must have earned income, such as wages from a job or unemployment. If you are married and filing a joint tax return, your spouse must also have earned income. (Exemptions apply to full-time students and people receiving disability benefits.) The IRS says that generally you may not take the child care credit if you are married and filing separately.

    The maximum amount of claimable child care expenses — $8,000 for one child or $16,000 for two or more — is not affected by income level. However, the rate of return for the child care credit decreases as income increases.

    For the 2021 tax year, the credit rate starts to reduce when a taxpayer’s income or household AGI (adjusted gross income), reaches $125,000. The credit rate is reduced by 1% for every $2,000 earned over $125,000, up until $183,000, where it settles at 20% for everyone earning $183,001-$400,000. For example, an AGI of $145,000 would receive a tax credit rate of 40%.

    For those making more than $400,000, the credit rate again reduces by 1% for every $2,000 earned over $400,000, and becomes zero for families earning $438,000 or more. For example, an AGI of $410,000 would receive a tax credit rate of 15%.

    Which dependents qualify to be included in the child care credit?

    According to the IRS, qualifying rules for dependents are fairly broad, but a dependent must fit one of the following criteria: 

    • Be under the age of 13, or
    • Be unable to care for themselves if 13 or older (for example, if you have a spouse or older dependent who is impaired and incapable of caring for themselves, and has lived with you for more than half the year, or
    • Be physically or mentally incapable of self-care — even if their income was $4,300 or more. 

    In addition, the qualifying dependent must have a tax identification number, such as a Social Security number.

    What do I need to know if I’m separated or divorced? 

    Only the custodial parent can claim the child care credit on their taxes. The IRS defines the custodial parent as the parent whom the child lived with for the greater number of nights in 2021. The rules for separated or divorced parents are similar to those governing the child tax credit and shared custody.

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