The Child and Dependent Care Credit can provide thousands of dollars to help families work, look for work, or go to school
The Child and Dependent Care Credit is a tax credit that helps parents and families pay for the care of their children and other dependents while they work, are looking for work, or are going to school. Thanks to the American Rescue Plan, signed by President Biden in March 2021, more families are eligible for the credit for the first time and, for nearly all families, the amount of the credit is larger than in prior years.
The Child and Dependent Care Credit has no effect on federal benefits
The Child and Dependent Care Credit is not considered income for any family or worker. Receiving the Child and Dependent Care Credit will not change the amount you receive from any other federal benefits, including unemployment insurance, Medicaid, SNAP (formerly food stamps), SSI, SSDI, TANF, WIC, Section 8, or Public Housing.
For 2021, the credit was significantly increased for eligible families
Thanks to the American Rescue Plan, for this year only, families can receive a Child and Dependent Care Credit worth:
- Up to $4,000 for one qualifying person (for example, a dependent who is under age 13) who needs care – up from $1,050 before 2021; or
- Up to $8,000 for two or more qualifying people who need care – up from $2,100 before 2021.
The credit is refundable for nearly all families
If you are eligible for the refundable Child and Dependent Care Credit:
- The credit will lower the amount of federal income taxes you are required to pay; and
- If the credit you receive is worth more than the taxes you owe, you will get the rest of the money back through your federal income tax refund.
You are eligible for the refundable credit if you (or your spouse, if you are married and filing a joint return) have your main home in one of the 50 States or the District of Columbia for more than half of 2021.
Individuals and their spouses can claim the credit
You can claim the credit if you (or your spouse, if you are married and filing a joint return) pay someone to care for one or more qualifying people in order for you to work, look for work, or go to school full-time, and your income level is within the income limits set for the credit.
- If you are married, you generally must file a joint return to claim the credit, but there are exceptions.
To help you determine if you are eligible for the credit, the IRS provides an online tool called “Am I Eligible to Claim the Child and Dependent Care Credit?”
There is an earned income requirement
You must have earned income during 2021 to claim the credit. If you are married and filing a joint return, your spouse must have earned income as well.
“Earned income” generally includes wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment. For more information on what qualifies as earned income, visit this IRS website.
Additional requirements may apply
The IRS provides helpful information about additional eligibility requirements that may apply to you.
Many different people can be a “qualifying person”
A “qualifying person” generally is one of the three following types of people:
- Your dependent who is under age 13 when the care is provided, and lived with you for more than half of 2021;
- Your spouse, if your spouse isn’t mentally or physically able to care for themselves and lived with you for more than half of 2021; and
- Certain other special qualifying persons who aren’t mentally or physically able to care for themselves, and lived with you for more than half of 2021.
The IRS has provided detailed information on other, less common factors that may impact whether a person is a qualifying person for the Child and Dependent Care Credit.
Children of divorced or separated parents, or parents living apart, can qualify
With regard to these life situations, the IRS provides helpful information for parents to determine if their child is a “qualified person.”
Eligibility stops the day a dependent no longer qualifies. You determine a person’s status as a “qualifying person” for each day of the year
For example, if your child turns 13 on September 16 and no longer qualifies, you can only count childcare expenses that you paid through September 15th.
Your credit amount is based on your care-related expenses and your income
Your credit amount is a percentage of your care-related expenses, which are subject to an earned income limit and a dollar limit.
- 50% of your care-related expenses, if your AGI is below $125,000.
- Between 20% and 50% of your care-related expenses, if your AGI is between $125,000 and $183,000.
- 20% of your care-related expenses, if your AGI is between $183,000 and $400,000.
- Between 0% and 20% of your care-related expenses, if your AGI is over $400,000 but not over $438,000.
- 0% of your care-related expenses, if your AGI is over $438,000.
The maximum amount of care-related expenses that you can take into account is:
- $16,000, if you had two or more qualifying persons. You can use this amount even if these care-related expenses were for just one of the qualifying persons.
- $8,000, if you had one qualifying person.
If you or your spouse is a full-time student or is unable to care for yourself, you are treated as having earned income for each month in the amount of $250 for one qualifying person, or $500 for two or more qualifying persons at any time during the year.
The IRS provides helpful additional information on how to calculate your Child and Dependent Care Credit.
A lot of different types of expenses qualify as “care-related expenses”
A “care-related expense” is an amount you (or your spouse, if you are married and filing a joint return) pay for the care of a qualifying person in order for you to work, look for work, or go to school.
Some medical expenses qualify as “care-related expenses”
Some expenses for the care of qualifying persons who aren’t able to care for themselves may qualify as care-related expenses and also as medical expenses. You can use them either way, but you can’t use the same expenses to claim both a child and dependent care credit and a medical expense deduction.
There is an earned income limit on how much care-related expenses you can use to figure your credit amount
The amount of care-related expenses you can use to figure your credit can’t be more than:
- Your earned income for the year if you are single at the end of the year; or
- The smaller of your or your spouse’s earned income for the year if you are married at the end of the year.
You need to keep records of care providers and include them when you claim the credit
When you file your tax return to claim the Child and Dependent Care Credit, you must identify all persons or organizations that provide care for your qualifying person. To identify the care provider, you must give the provider’s (1) name, (2) address, and (3) taxpayer identification number.
The IRS provides helpful instructions on how to provide the correct information.
You should keep all records regarding your eligibility for the credit amount you claimed
To help you calculate the correct amount of Child and Dependent Care Credit that you can claim, you should keep records of your care-related expenses and family members who receive care.
- If you get a tax refund, you should keep records to show that you (or your spouse, if you are married and filing a joint return) had a main home in the United States for more than half of 2021.
- If your dependent or spouse isn’t able to care for himself or herself, your records should show both the nature and length of the disability.
Why you should consider filing a 2021 tax return
If you haven’t filed a tax return before, or don’t file every year and are eligible for the Child and Dependent Care Credit, be sure to file to receive the credit this year.
You can file a 2021 tax return and potentially receive thousands of additional dollars in tax credits when you file. These additional credits include:
Free resources to help you file If you are new to tax filing, or even if you’ve filed before but would like some help this year, there are places located across the country that can support you as you file your tax return. Many of these organizations offer both in-person and virtual support.
Additionally, many individuals file their tax returns with an accountant or tax preparer for a fee and you can search for an authorized IRS e-file Provider to find support near you. The above are all no-cost solutions.
You can check your refund online, through an IRS app, or over the phone
Here are ways to check on the status of your refund.