Child and Dependent Care Credit

September 10, 2021

In the previous newsletter, we discussed the advance payment of Child Tax Credit which is expanded by the American Rescue Plan Act for 2021. The same act also significantly enhanced Child and Dependent Care Credit for 2021 only. Please refer to the table below for the differences.

• Common

  • Qualifying individuals

    • Your dependent qualifying child who was under age 13 when the care was provided;

    • Your spouse, if your spouse isn’t mentally or physically able to care for himself or herself and lives with you for more than half the year; and

    • A person who isn’t mentally or physically able to care for himself or herself, lives with you for more than half the year, and either:

      • Is your dependent, OR

      • Would have been your dependent except that (i) he or she receives more than a certain gross income amount ($4,300 in 2021), (ii) he or she files a joint return, or (iii) you (or your spouse in the case of a joint return) can be claimed as a dependent on someone else’s return.

  • Qualified expenses

    • They must be work-related. Expenses are considered work-related only if both of the following are true.

      • They allow you (and your spouse if filing jointly) to work or look for work.

      • They are for a qualifying person's care.

    • The main purpose of the care is the person's well-being and protection.

      • Examples of qualified expenses

        • Household services qualify if part of the services is for the care of qualifying persons, care outside your home, dependent care center, nursery school, preschool, or similar programs for children below the level of kindergarten, expenses for before- or after-school care of a child in kindergarten or a higher grade

      • Examples of disqualified expenses

        • Expenses to attend kindergarten or a higher grade, overnight camp, summer school and tutoring programs

  • The amount of work-related expenses you use to figure your credit can't be more than:

    1. Your earned income for the year if you are single at the end of the year, or

    2. The smaller of your or your spouse's earned income for the year if you are married at the end of the year.

  • How to claim the credit

    • To claim the credit for 2021, you will need to complete Form 2441, Child and Dependent Care Expenses, and include the form when you file your tax return. You need to list the care provider’s name, address, and tax identification number.