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Forget the child discount. You can get back $ 16,000 in childcare costs if you start now



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With the childcare credit, parents can write off expenses such as a daycare center or home carer.

Sarah Tew / CNET

If you have children, chances are you qualify for one stimulus check for up to $ 1,400 per person, and for the next child tax credit up to $ 3,600 each qualified child (you can calculate the total of your child discount here). But did you know that you can also claim up to $ 16,000 in tax credits on all childcare costs you pay in 2021, including daycare, day camp, nannies, and even transportation costs?

The child and dependent care tax credit applies to eligible childcare expenses up to $ 8,000 for one child and $ 16,000 for two or more family members. Depending on your income, you can declare up to 50% of these costs. This credit may not be the flashiest part of the American rescue plan passed in March, but together with some significant health care benefits, it is possibly one of the most profound benefits for families.

The only caveat is that while you won’t see the benefit of the credit until tax season 2022, you should start gathering information now to make sure you don’t miss out on money. Below we explain how these childcare discounts work. We’ve also made some suggestions about it how to use extra money. Also read how to do this claim a tax refund from the IRS before it disappears on May 17, and how see if your state owes you money.

The Child and Dependent Care Credit, Explained

The childcare credit is intended for parents to declare childcare expenses throughout the year, for example if you work and pay for services such as childcare or a babysitter for your children. These costs can be declared when you file your tax return each year.

How much you can get from the extended childcare credit has changed for the expenses you incurred in 2021. For example, the maximum amount you could claim for multiple children in previous years was $ 6,000 (now it’s $ 8,000). Under the new March 2020 incentive law, you can now claim up to $ 16,000 in childcare costs for multiple children.






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Which costs count towards the credit?

The law defines expenses based on childcare providers, but there is some wiggle room that also takes into account expenses such as transportation. The key is that any organization or person that provides care for your dependent will be counted as a childcare provider, as long as you pay them.

The IRS has relatively flexible rules about healthcare providers, according to Elaine Maag, principal investigator at the Stedelijk Institute. However, you may have better luck claiming childcare credits for people and groups who operate in an official capacity, such as your town’s summer camp program, than if you gave a neighborhood teen $ 40 to spend on your child for a few hours. to fit.

Qualified healthcare providers

What qualifies

What does not qualify

Childcare expenses

Your spouse

Programs for before and after school care

The parent of the dependent

Day camp

Your children

Transportation to and from healthcare providers

Babysitters paid “under the table” *

Babysitters, nannies, housekeepers

* Parents paying their babysitters in cash “under the table” should know that it is risky to claim the childcare tax credit as income may not be claimed or documented by the provider.

How to Claim the Child and Dependent Care Credit

You won’t actually claim the deduction until you file your 2021 tax next year (in 2022). For now, keep a detailed record of all childcare expenses – that means any receipts you receive from daycare or after-school programs showing the expenses you paid for. Next, fill out Form 2441 and attach it to your tax return Form 1040.

According to the IRS, upon your return, you must include the name, address, and TIN (this can be a Social Security number or employer’s identification number) of the health care provider. You can use Form W-10 to request the information you need from your healthcare provider.

Note that the Child and Dependent Care Credit Form is built into tax software, such as TurboTax and H&R Block. For example, it may ask if you have a child under the age of 13 and if you paid for childcare during the year.

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If you have childcare costs, make sure to register this.

Sarah Tew / CNET

How much you can declare per child for the childcare credit

For expenses incurred in 2021, you can claim up to $ 8,000 for one child or up to $ 16,000 for multiple dependents under the American Rescue Plan Act, said Garrett Watson, senior policy analyst at The Tax Foundation. Normally, parents can claim up to $ 3,000 for one child or up to $ 6,000 for two or more children.

This is different from 2021 child tax credit– those expanded payments will start this year. As of July, you can get between $ 500 and $ 3,600 in payments.

Income limits and eligibility rules

To be eligible for the child and care allowance, you must have a household adjusted gross income must be less than $ 125,000. If your income is higher than that, your tax credit will lapse at 50%. For example, instead of receiving the full $ 8,000, you qualify for $ 4,000. The credit rate falls back to 20% for people with an AGI of $ 183,000, and remains 20% until the income exceeds $ 400,000.

Credit interest eventually disappears completely for families earning $ 438,000 or more.

With the original childcare tax credits, credit rates would decrease to 35% if income exceeded $ 125,000 and 25% if the household’s combined income exceeded $ 183,000.

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Qualifications apply not only to parents, but also to dependents.

Sarah Tew / CNET

Qualification Rules Applicable to Dependents

According to the IRS, the qualification rules for dependents are quite broad. To be eligible, dependents must:

  • Be younger than 13 years old, or
  • Unable to take care of themselves (if 13 or older). For example, if you have a spouse or elderly dependent who is disabled and unable to take care of themselves – and have lived with you for more than half a year – you can claim the credits for them, or
  • Being physically or mentally incapable of self-care – even if their income was $ 4,300 or more – and
  • Get a tax identification number, such as a social security number.






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What divorced or divorced parents need to know about applying for the childcare discount

Only the parent who has parental authority can claim the childcare discount. The rules are similar to those for the child discount and shared custody.

If you’re married, both parents must work – or receive unemployment benefits – to be eligible for the credit, Maag said. And if you are in school, you can still earn credits.

For more ways to get money this year, see here how to save up to $ 50,000 in 2021 with one-time COVID credits and benefits. Here is also how to unsubscribe from the monthly child discount.


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