How you can claim up to $ 16,000 in child care tax credits in 2021, what to do first
People who pay for child care or dependents can claim up to $ 16,000 in tax credits next year as part of a major expansion of the child and dependent credit. The expansion was approved as part of the US bailout, which was enacted in March and included a third round of stimulus checks and the expansion of the child tax credit.
Prior to the adoption of the American Rescue Plan, the credit was limited to 35% of expenses and capped at $ 3,000 for a single qualified child or dependent, and $ 6,000 for multiple qualified members of your household. Now, the credit covers up to 50% of your expenses and is capped at $ 8,000 for a single dependent and $ 16,000 for multiple dependents.
Eligible people for whom you can claim the credit include:
- Dependent children under 13 at the time of care.
- A spouse who was physically or mentally unable to take care of themselves and who lived with you for more than half of the year.
- People who were physically or mentally unable to take care of themselves, have lived with you for more than half of the year and are either; (a) your dependent; or (b) could have been your dependent, except that he or she received gross income of $ 4,300 or more, or filed a joint return, or you (or your spouse, if you are filing it jointly) could have been claimed as a dependent on another taxpayer’s 2020 income tax return. return, according to the IRS website.
This means that services such as child care, babysitters, transportation for health care, day camps, before and after school care programs and more can be spent and you can receive credits. tax for money spent on these services.
However, you cannot claim the money spent on these services if the caregiver is:
- A spouse.
- The parent of your eligible individual if your eligible individual is your child and is under 13 years of age.
- Your child under 19.
- A dependent that you or your spouse can claim on your return.
What to start now: To claim the cost of care, you will need to provide the name, address and tax number of each service used for the care. This means that it might be wise to start keeping any receipts you already have or start contacting health care providers to make sure you document your costs throughout the year.
There are also income thresholds for the full extension of the child and dependent care credit, but these have also been changed significantly to allow more people to qualify. .
If your adjusted gross income for the year is less than $ 125,000, you can receive the full credit. If your AGI is greater than this number, the credit decreases as income increases before peaking at a rate of 20% for taxpayers with AGI above $ 183,000.
This 20% rate is valid for all AGIs below $ 400,000, but is again removed thereafter. Anyone with an AGI greater than $ 438,000 is not eligible for any portion of the credit.
When determining the amount you are claiming for care, you should subtract any “employer-provided dependent benefits, such as those provided through a flexible expense account (FSA)” from your total care expenditure, according to the IRS.
For separated or divorced parents, only the parent who claims the eligible child on his or her taxes can claim the credit.
The IRS says the credits will also be fully refundable for the first time, meaning even those who don’t owe federal taxes will be able to claim the credits if they choose. It’s also important to remember that this credit is different from the Child Tax Credit, which will include direct monthly payments starting next month.
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