As per Cnet.com, the tax season begins on January 24, and major changes to the child and dependent care credit in 2021 could result in a significant rise in tax refunds for parents and guardians this year. The child and dependent care credit allow taxpayers to decrease their taxes immediately by the amount spent on a child or dependent care expenses. The credit can be used for daycare, babysitters, or transportation associated with child care.
Below, we’ll go through how the child care tax credit works.
The Child And Dependent Care Credit – What Is It?
The child and dependent care credit is a tax benefit that allows parents to claim child care costs. If you paid for a daycare provider while earning, for example, you can claim that amount as a credit when you submit your taxes this year.
The highest amount you could claim in prior years was $3,000 for one child and $6,000 for two or more. You can claim up to $8,000 for one child or dependent and up to $16,000 for multiple children for expenses in 2021. The child care credit’s one-time expansion for 2021 also raises the maximum rate of return for child care costs from 35 to 50 %.
In short, for the 2021 tax year, you might receive up to $4,000 for a single child and up to $8,000 for 2 or more kids.
Before the American Rescue Plan, the child and dependent care credit was nonrefundable, which meant that it may lower your tax payment to 0 but you wouldn’t get a refund on anything extra. The credit is now completely refundable, which means you’ll get paid even if you don’t owe any taxes.
What Expenses Are Considered Eligible For The Child Care Credit?
The legislation specifies expenses in terms of child care providers, although there is some wiggle area for things like transportation. As long as you’re paying them, any organization or individual providing care for your dependent qualifies.
What Is The Maximum Amount Of Child-Care Expenses That You Can Claim?
According to the IRS, you can claim up to $8,000 in qualifying expenses for one dependent and up to $16,000 in eligible expenses for multiple dependents for expenses incurred in 2021.