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You can get up to $8,000 back in tax credit for child-care expenses. Here’s what you need to know

admin by admin
January 14, 2022
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North Wales council OKs 2022 tax increase

Last year’s child-care expenses may be worth more at tax time than you realize.

The child and dependent care tax credit, as it’s called, was expanded in several ways for 2021 alongside other tax changes. This means many families will get a bigger tax break and the credit could reach a larger swath of households than it had before.

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“Even if you may not have qualified for it in the past, you may now,” said Henry Grzes, lead manager for tax practice and ethics with the American Institute of CPAs.

generally gives parents some help covering the cost of care for children under age 13 or adult dependents. The expanded version, which was enacted as part of the American Rescue Plan Act last March, is for 2021 only and reverts to the previous rules this year.

The general qualifications didn’t change, however. That is, the credit is only available for dependent care provided so that you could go to work or look for work (or, perhaps, attend school). Generally speaking, you (and your spouse, for joint tax returns) must have earned income during the year to claim the credit.

And, importantly, the 2021 credit is refundable — which means that even if you have no tax liability, you could get the credit in the form of a refund.

Be aware that if you have a dependent care flexible spending account, the child-care expenses you cover through that FSA cannot count toward the tax credit. The money in that account is made pre-tax — meaning you already get a tax benefit.

“You can’t double dip,” said Dave Alison, president and founding partner of Prosperity Capital Advisors in Cleveland.

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