Many families struggle with the high cost of providing care for their children and other dependents. This tax season, families may be eligible for the new child and dependent care credit to help defray the cost of care for children and dependents.
The American Rescue Plan Act of 2021 brought added financial relief for families to help offset the high cost of child and dependent care. In addition to increasing the total tax credit, the Act expanded the number of people eligible to claim this credit. Since the caregiver tax credit is fully refundable under this act, that means you can still receive the money even if you don’t owe any taxes.
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Will I receive a caregiver tax credit?
You can take a tax credit when you pay for care for a qualified dependent, which is essentially a caregiver stimulus. In order for a dependent to be considered qualified, they must meet one of the following criteria:
- Someone who is younger than 13 years old
- A dependent who is 13 years or older who is unable to care for themselves
- A dependent who has lived in your household for more than half the year
- Someone who is mentally or physically unable to care for themselves
Under the American Rescue Plan, a caregiver may qualify for a tax credit of up to 50% of qualified dependent care expenses paid, or up to $4,000 for a single qualifying dependent and $8,000 for two or more qualifying dependents.
- The intent of the credit is to enable people to hire a caregiver and and then work or look for work. You and your spouse, if filing a joint return, were required to have income in 2021 in order to earn this earned income tax credit.
- For couples, the credit is limited to the lowest income of the two. To illustrate, if you have two or more qualified dependents, the lowest-paid spouse must earn at least $16,000 in order to be eligible for the $8,000 tax credit. Also, you must have at least $16,000 in qualified dependent care expenses to receive the full credit value for two or more dependents.
Not only did the American Rescue Plan increase the dollar value of the tax credit, but it also allowed more people to become eligible to claim the credit on their tax return.
To qualify for the refundable portion of the tax credit, your primary residence must be located within one of the 50 states or the District of Columbia for at least half of the year. (Residents of Puerto Rico and other territories also qualify, but additional rules for claiming apply.)
Do I need to apply for the caregiver tax credit?
To claim a caregiver tax credit, you will need to complete IRS Form 2441, regarding child and dependent care expenses, when you file your individual tax return. You must provide the name, address, and taxpayer identification number of the caregiver to take the credit. Be sure to keep copies of this information for your records.
Will I get two child tax credits?
In some cases, a family may be eligible for both a child tax credit and the child and dependent care credit.
Child tax credit (CTC)
You may be eligible to take a credit for qualified dependents who are under the age of 17 years old as of December 31.
In 2021, the child tax credit was increased to $3,600 for dependents under six years old and $3,000 for dependents between the ages of six and 17 years old under the American Rescue Plan Act.
In addition, families were eligible to receive up to 50% of the child tax credit in monthly $250 or $300 installments. Advance payments were made starting July 15, 2021, and were based on whether you claimed the child tax credit on your 2019 or 2020 individual tax return.
Taxpayers will receive the remaining portion of the child tax credit when they file their 2021 tax return. Since the act made the credit refundable, you can claim the tax credit even if you don’t owe taxes or have no earned income.
Child and dependent care credit
In a typical year, you receive a credit for child and dependent care expenses you paid when you file your return. You won’t receive a check, but the credit reduces the amount of taxes that you owe. With the American Rescue Plan, however, the tax credit is now refundable, which means you can receive a check even if you don’t owe any taxes.
Cover the cost of care with the caregiver tax credit
The American Rescue Plan has provided Caregiver tax credits to provide much-needed relief to families who are struggling to pay child, dependent care costs. This plan allows you to apply by filing IRS Form 2441 and adding your information regarding expenses incurred by your qualifying dependents. If you feel you may qualify for a caregiver tax credit, follow this link to apply for this benefit.
Frequently Asked Questions
Is there a tax credit for family caregivers?
If you incur dependent care expenses which enable you to work, look for a job, or go to school, you may be eligible for a tax credit. The tax credit is based on how much money you make and the percentage of eligible dependent care expenses you paid out.
Is there a tax credit for taking care of an elderly parent?
You may be eligible for a tax credit If you pay for outside care for an elderly parent who is physically or mentally unable to care for themselves and they live with you for at least half of the year. To qualify for the credit, you must earn at least $16,000.
What is the primary caregiver tax credit?
When you pay for the care of a qualified dependent, you may be able to receive the Child and Dependent Care credit when you file your individual tax return.