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This lesser-known tax credit may offer working families a bigger write-off this year

admin by admin
August 22, 2021
in Tax
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This lesser-known tax credit may offer working families a bigger write-off this year

The enhanced child tax credit captured America’s attention this summer as millions of families began receiving payments.

But Congress also boosted a lesser-known write-off this year for working families: the child and dependent care tax credit.

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Often conflated with the child tax credit, the child and dependent care tax credit offers working parents a boost at tax time to help cover the cost of care for children under age 13 or adult dependents.

Previously, families could claim up to $3,000 in expenses per dependent for a maximum of $6,000. However, the American Rescue Plan raised the eligible costs for 2021 to $8,000 per dependent, capped at $16,000.

This year, families may receive up to 50% of those expenses as a refundable credit, depending on income, meaning it may reduce their tax bill or offer a refund, regardless of liability.

“The changes made by the American Rescue Plan stand to have an enormous impact on families and their childcare expenses,” said Linda Smith, director of the Bipartisan Policy Center’s early childhood initiative.

While many families have received payments for the child tax credit, nearly 50% aren’t aware they can claim another tax break for child and dependent care expenses, according to a Bipartisan Policy Center survey.

Switching the credit from non-refundable to refundable will reach more Americans because “many low-income families just simply don’t have a tax liability,” Smith said.

 

Read more…

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