Childcare costs can be high, especially while the COVID-19 pandemic rages. Although parents may qualify for another tax credit when they file their 2021 taxes.
More families could be eligible for more tax relief with the Child and Dependent Tax Credit – different from the 2021 Child Tax Credit – depending on their childcare expenses in 2021. Here’s what you need to know.
Paying child care expenses could result in a tax credit of up to $8,000, up from the usual $3,000. With two or more children, parents can receive up to $16,000 in tax credit, up from $6,000 previously, CNBC reports.
Households earning less than $125,000 are eligible for the credit. It is supposed to cover 50% of eligible expenses. The credit only applies to 20% of household expenses bringing in more than $125,000 but less than $183,000.
Some may be able to deduct up to 50% of child care expenses, which means a credit of $4,000 for one child (instead of $1,050) and $8,000 (instead of 2 $100) for two or more children.
Parents can also get the 2021 credit as a refund even if they have no tax liability. According to the IRS, “In 2021, for the first time, the credit is fully refundable. That means an eligible family can get it, even if they don’t owe federal income tax. “
That means an eligible family can get it, even if they don’t owe federal income tax.
However, if a parent has expenses covered by a flexible spending account for dependent care, those expenses cannot be counted against their credit.
According to the IRS, here is who is eligible for the Child and Dependent Tax Credit:
• Your eligible dependent child who was under the age of 13 when the care was provided,
• Your spouse who was physically or mentally unable to care for themselves and who lived with you for more than half a year, or
• A person who was physically or mentally unable to care for themselves, lived with you for more than half a year and either: (a) was your dependant; or (b) could have been your dependent, except that he or she received a gross income of $4,300 or more, or filed a joint return, or you (or your spouse, if of a joint return) could have been claimed as a dependent on another taxpayer’s 2020 return return.
Learn more via CNBC.
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