Part of the Coronavirus tax relief for the 2021 tax year includes changes to the federal Child & Dependent Care tax credit.
Generally, this credit allows taxpayers with children under 13 years of age to reduce their tax liability for expenses they incur for the cost of care for their children that allow the taxpayers to work. Qualifying expenses do NOT include private school for children in grades K through 12.
Here is a list of major changes to the Child & Dependent Care Credit for the 2021 tax year:
-Eligible expenses for care are increased from $3,000 for one child ($6,000 for two or more children) to $8,000 for one child ($16,000 for two or more children).
-The credit is refundable, meaning that if your federal income tax liability is reduced to zero, the credit can create an overpayment on your tax return that can be refunded to you.
-There are income limits on receiving the credit. The amount of the credit is reduced for a taxpayer with adjusted gross income between $125,000 and $438,000. If your AGI is above $438,000, you’re not eligible to reach the credit.
Additional details on the 2021 Child & Dependent Care Credit are available on the IRS’ FAQ page here: https://www.irs.gov/newsroom/child-and-dependent-care-credit-faqs
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Please note: the information on this website is intended to provide general advice to start the discussion with your tax professional. The information on this website may not apply to your specific situation. Only an experienced professional with the details of your specific situation can advise you on making the best decision. Contact me or your tax professional to discuss the information on this site to make an informed decision.