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Your childcare payments can get you up to $16,000 in credit. Everything to know

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Paying for childcare can be expensive. The comprehensive childcare loan helps to cover the costs.

Sarah Tew/CNET

If you pay someone to take care of your children or a dependent while you work, March’s incentive account you can write off a large part of the expenses related to that child or dependent care. That includes if you hire someone to look after your child or a dependent, be it daycare or a nanny – or even care-related transportation.

You may be eligible to get up to 50% back as a tax credit or refund for these 2021 childcare-related expenses. The amount you can claim is up to $8,000 for one dependent and $16,000 for two or more. The catch? You should start collecting your receipts and other monetary evidence now to ensure that you can claim the tax benefit with your income tax return next year.

We explain below how this childcare allowance works. Even if you expect to benefit from the extensive children’s discounts (monthly payments start in July), you may want to update your income and dependents information via the upcoming IRS portals. And did you or someone in your household receive unemployment benefits in 2020, read about how do i get tax refund? on that money. This story was recently updated.

What do I need to know about the 2021 child and care credit?

The child and care credit is a tax benefit that is mainly intended to allow parents to declare the costs of childcare. For example, if you work now and pay for a daycare, you can declare those costs on your tax return in 2022.

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

What does that mean? Basically, for the 2021 tax year, you can get a 50% refund for 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, the Child and Dependent Care Loan was non-refundable, meaning it could lower your tax bill to zero, but you wouldn’t receive a refund on anything left over. Now the credit is fully repayable, meaning you get money for it even if you don’t owe any taxes.

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What counts as a qualifying expense for the credit?

The law defines expenses based on childcare providers, but there is some leeway that also takes expenses such as transportation into account. The key is that any organization or person that cares for your dependent is counted as long as you pay them. (So ​​that doesn’t apply to your spouse, for example.)

The Tax and Customs Administration has relatively relaxed rules about healthcare providers, says Elaine Maag, principal researcher at the Urban Institute. However, you may have better luck claiming childcare credits for people and groups who work in an official capacity, such as a preschool, rather than giving a neighborhood teen $40 to babysit your child for a few hours.

Qualified Caregivers

What qualifies?

What does not qualify?

Daycare costs

Your husband

Before and After School Programs

The parent of the dependent

day camp

Your children

Transport to and from healthcare providers

Babysitters paid “under the table”*

Babysitters, nannies, housekeepers

*Parents who pay their babysitters ‘under the table’ in cash should know that it is risky to claim the childcare allowance as the income cannot be claimed or documented by the provider.

How can I declare the costs with my taxes?

You won’t claim the credit until you file your 2021 taxes next year. For now, keep a detailed record of all childcare expenses — that is, any receipts you receive from daycare or after-school programs showing the expenses you paid for. Then, as tax day approaches in 2022, complete Form 2441 and attach it to your tax return on Form 1040.

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

Please note that the Childcare Allowance and Care Allowance 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.

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

Sarah Tew/CNET

What is the maximum amount that I can claim for expenses per child?

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

Please note that this is a different credit than the 2021 child tax credit. The advance Payments of child tax credits start in July monthly. In that case, you could get between $500 and $3,600 per child over the course of this year and next.

As a parent, what should I know about income requirements?

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

For the 2021 tax year, the amount of credit begins to gradually decrease when 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 income reaches $400,000. The credit rate eventually disappears completely for families making $438,000 or more.

What should I know about the eligibility of my family members?

According to the IRS, the eligibility rules for dependents are quite broad, but a dependent must meet one of the following criteria:

  • Am under 13 years old, or
  • Not being able to look after themselves if you are 13 years of age or older (for example, if you have a dependent spouse or parent who has a disability and is unable to look after themselves, and who has been with you for more than half a year has lived, or
  • Being physically or mentally unable to care for themselves, even if their income was $4,300 or more.

In addition, the eligible person must have a tax identification number, such as a social security number.

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What should I know if I am divorced or divorced?

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

For more ways you can get money this year, find out here: how to save money with credits and benefits in 2021. Also, here’s how to opt-out of monthly child tax credit payments.

The editorial content on this page is based solely on objective, independent reviews by our writers and is not influenced by advertising or partnerships. It is not provided or commissioned by any third party. However, we may receive compensation when you click on links to products or services from our partners.

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