These credits are not the same as thecoming in July. Instead, you can claim any eligible expenses related to childcare, such as a daycare or even a home care provider who pays you to look after your child while you are at work (aka a babysitter). You can declare up to 50% of your expenses, depending on your income (we explain below).
We will tell you everything you need to know about how childcare tax credits work. Use ourto see how much you are getting and . Also make sure that you , like .
How much can you declare per child for the childcare credits?
According to Garrett Watson, senior policy analyst at The Tax Foundation, you can claim up to $ 8,000 for one child or up to $ 16,000 for multiple dependents this year under the American Rescue Plan Act.
Normally, parents can claim up to $ 3,000 for one child or up to $ 6,000 for two or more children.
Is there an income limit to qualify for childcare benefits?
Yes, from a householdshould be less than $ 125,000, Watson said. If your income is higher than that, your tax credit will lapse at 50%. For example, instead of $ 8,000, you now get $ 4,000. The credit rate falls back to 20% for people with an AGI of $ 183,000, and stays 20% until income exceeds $ 400,000.
Credit interest eventually expires in full for those who earn $ 438,000 or more.
With the original childcare tax credits, credit rates would decrease to 35% if income exceeded $ 125,000 and 25% if income exceeded $ 183,000.
What are the eligibility rules for dependents?
They are quite broad. To be eligible, according to the IRS, 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 who lives with you for more than half the year – you can apply for the tax credits for them, or
- Being physically or mentally incapable of self-care – even if their income was $ 4,300 or more – and
- Have a tax identification number, such as a social security number.
Are there any rules for who will take care of your children?
According to Elaine Maag, principal investigator at the Municipal Institute, the IRS has relatively lax rules about health care providers. You can pay a family member, hire a housekeeper, or recruit a nanny. You can also claim costs for childcare, before and after school, day camp – and transportation to and from your healthcare provider, Watson said.
However, parents paying their babysitters in cash “under the table” should know that it is risky to claim the childcare tax credit as the income may not be claimed or documented by the provider.
Can more than one parent claim the tax credit? What about children of divorced or divorced parents?
No. The rules are similar to those for the child discount: only the parent who has parental authority can claim the childcare discount.
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.
How you can claim the tax credit for children and dependent care
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, including the kind of expenses you paid and their tax number. You then complete form 2441 (PDF) and enclose it with your tax return form 1040.
For more ways to get money this year, see here. Here is also and .