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How you can use this tax credit to get back thousands of euros from childcare and childcare expenses


Regardless of your income, you can claim the deduction for healthcare costs.

Sarah Tew / CNET

Maybe you already are plans for the money you could receive the advance from July child tax credit payments. (calculate your total here.) But the American rescue plan legislation that allows the monthly payments to also allow you to write off a higher amount of costs related to caring for a child or a dependent person with a disability? These eligible expenses include things like childcare, babysitters, and transportation.

If you qualify, you can get up to 50% back on these childcare costs. The maximum amount you can claim is $ 8,000 for one dependent and $ 16,000 for two or more. The catch? You must start collecting information now to make sure you don’t miss out on money when you file your income tax return next year.

We will explain how these childcare tax credits work. We’ve also made some suggestions about it how to use the extra money and what you need to know about the IRS child tax credit portals. Even if you or someone in your household became unemployed during the pandemic in 2020, learn more about it here how to get a tax refund on that money. This story was recently updated.

What you need to know about the child and dependent care deduction

The childcare and childcare deduction is a tax benefit for parents to declare childcare expenses. For example, if you now work and pay for a daycare center, you can declare that expense when you file your tax return in 2022.

How will credit be different in 2021? In previous years – including tax year 2020 – the maximum amount you could claim for multiple children was $ 6,000. Under the new incentive law, you can claim up to $ 16,000 in childcare costs for multiple children and up to $ 8,000 for one or only dependent child.

What does that mean? Basically, for the 2021 tax year, you can get 50% back on up to $ 8,000 in childcare and similar expenses (and up to $ 16,000 in expenses for two or more dependents).

Before the US bailout plan, the Child and Dependent Care Credit was non-refundable, meaning it could lower your tax bill to zero, but you wouldn’t get a refund for whatever is left. Now the credit is fully refundable, which means you receive money for it even if you don’t owe any taxes.

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What counts as eligible expenditure?

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 takes care of your dependent is counted as long as you pay them. (So ​​that does not apply to your spouse, for example.)

According to Elaine Maag, principal investigator at the Municipal Institute, the IRS has relatively lenient rules about health care providers. However, you may have better luck claiming childcare credits for people and groups who operate in an official capacity, such as kindergarten, instead of giving a neighborhood teen $ 40 to babysit your child for a few hours.

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 babysitter 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 Declare Your Tax Expenses in 2022

You will not actually claim the credit until you file your taxes before 2021 next year. 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. When tax day approaches in 2022, complete Form 2441 and enclose it with 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, those programs may ask if you have a child under the age of 13 and if you paid for childcare during the year.


Keep detailed and organized records of all expenses and receipts to show the IRS next year.

Sarah Tew / CNET

How many expenses can be claimed per person

For expenses incurred in 2021, you can claim up to $ 8,000 in eligible expenses for one dependent or up to $ 16,000 in eligible expenses for multiple dependents, according to Garrett Watson, senior policy analyst at the Tax Foundation.

Keep in mind that this is a different credit than the 2021 child tax credit. The advance The payment of the child discount starts in July monthly. In that case, you can get between $ 500 and $ 3,600 per child this year and next year.

What you need to know about income limits and parental rules

To be eligible, you must have earned an income, such as wages from a job or unemployment. If you are married and are filing a joint tax return, your spouse must also have earned an income. (Exemptions apply to full-time students or people with disabilities.)

For the 2021 tax year, the amount of credit will begin to phase out when the taxpayer income or household AGI, or adjusted gross income, reaches $ 125,000. The credit will be reduced by 50% for any amount between $ 125,000 and $ 183,000, after which it will be tapered to 20%. This 20% lasts until the income reaches $ 400,000. Credit interest eventually disappears completely for families earning $ 438,000 or more.

What You Need to Know About Dependent Eligibility

According to the IRS, the qualification rules for dependents are quite broad, but they must meet one of the following criteria:

  • Be younger than 13 years old, or
  • Inability to take care of yourself if you are 13 or older (for example, if you have a partner or an older dependent who is disabled and unable to take care of themselves, and who has lived with you for more than six months, or
  • Being physically or mentally incapable of self-care – even if their income was $ 4,300 or more

In addition, the eligible dependent must have a tax identification number, such as a Social Security number.

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What Divorced and Divorced Parents Need to Know

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.

For more ways to get money this year, see here how to save money with credits and benefits in 2021. Here’s how unsubscribe from the monthly child discount.

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