It can be difficult for many families to access the high-quality affordable child care they need, especially as many families struggle to recover from the recession and make ends meet. Part of this difficulty is the high cost of child care expenses. For some low-income families, child care costs represent 35% of their income.
Fortunately, the American Rescue Plan Act (ARPA) expanded the federal Child and Dependent Care Tax Credit for one year to help families cover out-of-pocket child care costs from 2021. This tax season, families with two or more children can receive up to $8,000 dollars back in their refunds for the child care expenses they claimed in 2021. (Learn more about the expanded federal credit here.) Additionally, most states have some type of child and dependent care (CADC) tax provision, and some of these credits are linked to the federal credit.
There are 13 states with CADC tax provisions linked to the federal credit that also change their laws automatically when the federal law changes. And so, thanks to the expansions to the federal credit, some state CADC tax provisions may also provide bigger credits for families this year. Below is a chart of the possible increases. Bolded provisions indicate families can receive the credit as a refund.
|State Tax Provision||Maximum Value for TY 2020||Maximum Value for TY 2021*|
|Colorado Child Care Expense Tax Credit||$1,050||$4,000|
|Delaware Child Care Credit||$1,050||$4,000|
|District of Columbia Credit for Child and Dependent Care Expenses||$672||$2,560|
|Iowa Child and Dependent Care Credit||$1,575
|Kansas Credit for Child and Dependent Care||$525||$2,000|
|Louisiana Child Care Credit||$1,050||$4,000|
|Maryland Credit for Child and Dependent Care Expenses||$672||$2,560|
|Nebraska Credit for Child and Dependent Care Expenses||$2,100||$8,000|
|New Jersey Child and Dependent Care Credit||$1,000||$2,000|
|Oklahoma Child Care Tax Credit||$420||$1,600|
|Rhode Island Credit for Child and Dependent Care Expenses||$525||$2,000|
|Wisconsin Child and Dependent Care Tax Credit||Passed in 2021||$4,000|
Tax benefits like state CADC provisions can help reduce families’ tax bills—or boost their incomes—at a time when many families are trying to rebuild their economic security. With the 2021 ARPA expansions, families should be especially sure to claim all the tax benefits available at the federal and state level.
*These estimates do not account for changes that the states may have made, or may still make, to unlink their CADC provisions from the federal credit.