The first day of tax season was yesterday, Monday, January 24. While parents may expect to receive the remainder of their child tax credit money with their refund after filing their return, that isn’t the only significant benefit for parents this year.
The child and dependent care credit, tax relief for families, has also been enhanced, with the maximum effective return increasing to $8,000 for one kid and $16,000 for two or more. Because of a one-time expansion in the American Rescue Plan Act, this is the case.
The child and dependent care credit allow taxpayers to deduct the amount spent on a child or dependent care expenses such as daycare, babysitters, or related transportation from their taxes. What’s the catch? You’ll need all of your receipts and other monetary documentation to claim the tax deduction when you file your income tax return.
Child care credit qualifying expense
According to MSN, the legislation defines fees based on child care providers, although there is some leeway that allows for other costs such as transportation. As long as you’re paying them, any organization or person caring for your dependant counts. A spouse or unpaid relative, for example, does not qualify.
According to Elaine Maag, principal research associate at the Urban Institute, the IRS has rather lax standards about care providers. However, claiming child care credits for people and groups operating in an official capacity, such as nursery schools and daycare centers, will likely be easier than claiming child care credits for the $40 you paid a teenager to keep your child for an afternoon.
Parents who pay cash “under the table” to their babysitters should be aware that claiming the child care tax credit is dangerous because the income may not be recognized or documented by the provider.
Maximum amount for child care tax credit
According to the IRS, you can claim up to $8,000 in qualifying expenses for one dependent or up to $16,000 in eligible expenses for multiple dependents for expenses incurred in 2021.
Keep in mind that the child and dependent care credit is not to be confused with the child tax credit, which has the same name. Last year, payments for the advance child tax credit were made on a monthly basis. If you’re eligible for the child tax credit but didn’t get advance payments, you’ll get a credit of $500 to $3,600 per child when you file your taxes.
If one is separated or divorced, the child care credit is only available to the custodial parent. The custodial parent, according to the IRS, is the parent with whom the child spent the most nights in 2021. The laws governing the child tax credit and shared custody are the same for separated or divorced parents.