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Child and dependent care credit: 2021 tax year
Working parents with child care expenses can claim this credit, but there are strict requirements.
The Child Care Tax Credit, also known as the Child and Dependent Care Tax Credit, was created to provide tax relief for working parents. But you must meet strict requirements to qualify.
What is the Child and Dependent Care Credit?
The Child Care Tax Credit helps working parents pay for daycare expenses for children under 13, incapacitated spouses and qualifying adult dependents.
The American Rescue Plan Act of 2021 significantly increased the Child and Dependent Care Credit for 2021. If you qualify, you can claim up to $8,000 of care expenses for one dependent or $16,000 for two or more dependents. You’ll receive a credit worth up to 50% of these expenses depending on your income.
And unlike previous years, the credit is now potentially refundable. That means if this credit reduces your tax bill to $0, you may receive a refund for any leftover credit.
How much is the Child and Dependent Care Credit worth in 2021?
There are two parts to the Child Care Tax Credit. The first part tells you how much you can write off based on your filing status and number of dependents.
Find your limit in this chart:
Child Care Tax Credit limits 2021
|Number of dependents||Single, married filing jointly or head of household||Married, filing separately|
|Two or more||$16,000||Not eligible|
The second part tells you the percentage of eligible expenses you’ll get a credit for based on your adjusted gross income. Find your percentage in the following chart:
Amount of credit
The maximum credit you can receive for work-related expenses is 50%. Families with an adjusted gross income of $125,000 are eligible for the maximum credit amount. This tax credit gradually phases out if you make over $125,000.
For income levels between $125,000 and $185,000, your credit is reduced by 1% for every $2,000 over $125,000. Families earning between $185,000 and $400,000 qualify for a flat 20% credit.
And for incomes between $400,000 and $440,000, the credit drops 1% for every $2,000 over $400,000. Those who earn over $440,000 won’t qualify for the Child and Dependent Care Credit.
Here’s what your credit amount might be based on your annual income:
|Adjusted gross income||Credit percentage|
|Up to $125,000||50%|
|$125,001 to $127,000||49%|
|$127,001 to $129,000||48%|
|$129,001 to $131,000||47%|
|$131,001 to $133,000||46%|
|$133,001 to $135,000||45%|
|$135,001 to $137,000||44%|
|$137,001 to $139,000||43%|
|$139,001 to $141,000||42%|
|$141,001 to $143,000||41%|
|$143,001 to $145,000||40%|
|$145,001 to $147,000||39%|
|$147,001 to $149,000||38%|
|$149,001 to $151,000||37%|
|$151,001 to $153,000||36%|
|$153,001 to $155,000||35%|
|$155,001 to $157,000||34%|
|$157,001 to $159,000||33%|
|$159,001 to $161,000||32%|
|$161,001 to $163,000||31%|
|$163,001 to $165,000||30%|
|$165,001 to $167,000||29%|
|$167,001 to $169,000||28%|
|$169,001 to $171,000||27%|
|$171,001 to $173,000||26%|
|$173,001 to $175,000||25%|
|$175,001 to $177,000||24%|
|$177,001 to $179,000||23%|
|$179,001 to $181,000||22%|
|$181,001 to $183,000||21%|
|$183,001 to $185,000||20%|
|$185,001 to $400,000||20%|
|$400,001 to $402,000||19%|
|$402,001 to $404,000||18%|
|$404,001 to $406,000||17%|
|$406,001 to $408,000||16%|
|$408,001 to $410,000||15%|
|$410,001 to $412,000||14%|
|$412,001 to $414,000||13%|
|$414,001 to $416,000||12%|
|$416,001 to $418,000||11%|
|$418,001 to $420,000||10%|
|$420,001 to $422,000||9%|
|$422,001 to $424,000||8%|
|$424,001 to $426,000||7%|
|$426,001 to $428,000||6%|
|$428,001 to $430,000||5%|
|$430,001 to $432,000||4%|
|$432,001 to $434,000||3%|
|$434,001 to $436,000||2%|
|$436,001 to $438,000||1%|
|$438,001 to $440,000||0%|
The child care tax credit has several limits, such as:
- Married couples filing separately don’t qualify. You don’t qualify for the child care tax credit if you’re married and filing separately unless you are legally separated or living apart from your spouse.
- Claimed expenses can’t exceed earned income. If you spent $8,000 in daycare expenses but only earned $6,000 this year, you can only claim $6,000 worth of daycare expenses.
- Employer benefits reduce eligible expenses. If your employer offers dependent benefits, you must subtract them from your childcare expenses before you claim the credit.
- If you’re married, both spouses must work. Both spouses must have earned income for the year to qualify for the child care tax credit.
- Some states have their own dependent care credits. You could receive an additional dependent care credit if your state offers one.
How much was the Child and Dependent Care Credit worth in previous years?
The child care tax credit was lower in previous years. In 2020, the credit was worth up to $3,000 for one dependent and $6,000 for two or more dependents.
Who qualifies for the Child and Dependent Care Credit?
You qualify for the child care tax credit as long as you:
- Aren’t filing separate returns if you’re married.
- File taxes using Form 1040 or 1040NR.
- Have earned income through an employer or self-employment.
- Care for a qualifying child or dependent.
- Pay dependent care expenses so you and your spouse can work or look for work.
- Make payments to a qualifying care provider who you can’t claim as a dependent.
- Can provide the name, address and tax identification number for the care provider on your tax return.
Who qualifies as a child or dependent?
The child or dependent must have lived with you for at least half of the tax year and meet one of the following eligibility requirements:
- A child age 13 or younger whom you can claim as your dependent
- A spouse or another dependent who is mentally or physically incapacitated
Who qualifies as a care provider?
Anyone can qualify as a care provider as long as they’re not:
- Your spouse.
- The parent of your qualifying dependent.
- Another dependent listed on your return.
- Any of your children under age 19, even if you’re not claiming them as your dependent.
How to calculate the Child and Dependent Care Credit
Follow these steps to calculate your child care tax credit.
- Add up all your qualifying dependent care expenses for the year.
- Calculate how much of your expenses you can claim based on your filing status and number of dependents.
- Calculate your adjusted gross income by subtracting 401(k) or IRA contributions and itemized deductions from your gross income.
- Take your adjusted gross income and use the chart above to determine what percentage of your expenses you can get credit for.
- Multiply your eligible dependent care expenses in Step 2 by your percentage in Step 4 to get your child care tax credit amount.
Let’s look at an example.
Related tax credits or deductions
If you have children, you may also qualify for these credits:
- Earned Income Tax Credit. If your income is below $57,414, you could receive a credit worth up to $6,728.
- Child Tax Credit. If you have children under age 17, you could receive a credit worth up to $3,600 for each child.
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If you qualify for the Child and Dependent Care Credit, you could receive a credit worth up to $4,000 for one dependent or $8,000 for two or more. There are strict qualifications, but you shouldn’t let that stop you from claiming it if you qualify. Be sure to have your care provider’s taxpayer identification number on hand when you’re ready to file taxes.
If you’re looking to breeze through this tax season, consider hiring a professional or compare top-rated online services that can do most of the legwork for you.
Frequently asked questions
What happens if I claim the child care tax credit if I use a Dependent Care FSA?
Under most circumstances, you can’t claim the child care tax credit and use a Dependent Care FSA in the same year because both offer tax advantages. You’ll have to choose one or the other. If you’re unsure about what you should do, run the numbers or talk to a professional about which one makes the most sense for you.
What is my caregiver’s taxpayer identification number?
You’ll use your caregiver’s Social Security number or Employer Identification Number as their Taxpayer Identification Number.
How do I factor in summer camp as dependent care?
If you send your child to day camp, it qualifies as dependent care. But an overnight camp doesn’t qualify because the IRS doesn’t consider it a work-related expense.
Can I claim both the Child Tax Credit and the Child and Dependent Care Credit?
Yes. If you qualify for both credits, you can claim them in the same tax year.
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