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It’s back-to-school season! While families may be focused on health concerns or back-to-school costs like school supplies or new clothes and shoes, it’s a good time to think about child care. Some families might be starting before- or after-school child care; others may have put summer day camp or child care expenses from earlier in the year out of mind. But parents need to know that the newly expanded Child and Dependent Care Tax Credit (CDCTC) can help families cover out-of-pocket child care costs from 2021.
Here is how the expanded CDCTC can help you and your family this year.
The CDCTC is a federal tax credit that helps cover out-of-pocket child care expenses that allow parents with children under 13 to work, look for work, or in some cases go to school. It’s different from the Child Tax Credit (CTC), which families with children 17 or under may also be eligible for. Families who claim the CDCTC when they file their taxes will receive a percentage of what they spent on child care this year back as a tax refund. Many families use their refunds to cover necessities, reduce debt, or save for emergencies. This support is important considering how many parents, particularly women, have struggled to make ends meet this year.
2. The CDCTC is Better than Ever in 2021
The American Rescue Plan was enacted in March and improves the CDCTC in several important ways. This year, families can claim up to $8,000 in expenses for one child and up to $16,000 in expenses for two or more children—compared to $3,000 and $6,000 previously. Families can also receive a higher percentage of these expenses back as a refund—up to 50% for families making $125,000 a year or less. So, a family with two children under 13 that earns $75,000 and spends $5,000 on child care would be eligible for a $2,500 credit this year. You can estimate what your credit amount will be using this CDCTC Calculator.
And most importantly, the CDCTC is now refundable, so more low- and moderate-income families can benefit from the credit.
3. It is Important to Track Your Expenses Now
Because the CDCTC is based on child care expenses, families need to keep track of those costs for 2021. This includes expenses for center-based care; family child care homes; babysitters; care provided by relatives, neighbors, or friends; before- or after-school care; and summer or vacation day camps. Families should also keep track of their child care provider’s name, address, and tax ID—either their Social Security Number or Employer Identification Number. Even if a provider does not provide their tax number, you might still be eligible for the credit if you can show you tried to get the information.
For more information about tracking your expenses, check out the IRS FAQ page.
4. To Receive the Credit, File Your Taxes in Early 2022
To receive the CDCTC, you will need to file a 2021 federal tax return next year in early 2022 and claim the credit on your tax form. If you have been receiving advance CTC payments, you will also need to file your taxes to receive the second half of your CTC. Even if you haven’t received advance payments, you might still be eligible to claim the CTC and the EITC. Free tax filing assistance may be available through VITA, Tax Counsel for the Elderly, and Code for America. And you may qualify for free tax filing software if your income is less than $72,000.
5. The CDCTC Expansions Are Only for This Year
Unfortunately, the American Rescue Plan only expanded the CDCTC for 2021. Unless Congress takes action, families will lose benefits next year though many will continue struggling to recover from the pandemic. Tell your Member of Congress how important the expanded CDCTC is for families, and to make the tax credit permanent.
