Child and Dependent Care Credit: Claim Up to $16,000 Support This Year

The expanded child tax credit for 2021 gets a lot of press, but there’s another big tax change for families this year: the child and dependent care tax credit has been significantly increased. Taxpayers can now deduct up to $8,000 for one kid and up to $16,000 for two or more dependents. The American Rescue Act also boosted the child care credit’s rate of return, thereby quadrupling the benefit for some families.

The child and dependent care credit allows taxpayers to deduct the cost of a child or dependent care, such as daycare, babysitters, and related transportation, off their tax bill. You’ll need all of your receipts and other monetary documentation to claim the tax deduction when you file your income tax return.

How Child and Dependent Care Credit may give you up to $16,000?

According to CNET, the child and dependent care credit is a tax benefit that allows parents to deduct child care costs. If you paid for a daycare provider while working, for example, you may 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 kid or dependent and up to $16,000 for multiple children for expenditures in 2021. The child care credit’s one-time extension for 2021 also raises the maximum return rate for child care costs from 35 percent to 50 percent.

For the tax year 2021, you might receive up to $4,000 for one child and $8,000 for two or more. In previous years, the credit’s maximum return was $1,050 for one kid and $2,100 for two or more. That’s a gain of 381 percent!

The child and dependent care credit was formerly nonrefundable, which meant that it may reduce your tax payment to zero but you wouldn’t get a refund on anything you didn’t pay. The credit is now fully refundable, meaning you will get money even if you do not owe any taxes.

For every $2,000, or fraction thereof, beyond the $125,000 barrier, the credit amount begins to phase off by one percent from the beginning 50%. So, if you earn $130,000, you can only deduct 47 percent of your child or dependent care expenses. When income hits $183,000, the proportion reduces to 20%.

The credit for 20% of your costs lasts until your family income reaches a limit of $400,000. Above that threshold, the credit begins to trend off again, until any sum exceeding $438,000 results in a credit of zero. This computation is only valid for the fiscal year 2021, as per AS.com.

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