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Child and Dependent Care Credit
Taxpayers who are paying someone to take care of their children or another member of household while they work, may qualify for child and dependent care credit regardless of their income.
For tax year 2021, the maximum eligible expense for this credit is $8,000 for one child and $16,000 for two or more. Depending on their income, taxpayers could write off up to 50% of these expenses.
For the purposes of this credit, the IRS defines a qualifying person as:
- A taxpayer's dependent who is under age 13 when the care is provided.
- A taxpayer's spouse who is physically or mentally unable to care for themselves and lived with the taxpayer for more than half the year.
- Someone who is physically or mentally unable to take care of themselves and lived with the taxpayer for six months and either:
- The qualifying person was the taxpayer's dependent or
- They would have been the taxpayer's dependent except for one of the following:
- The qualifying person received gross income of $4,300 or more
- The qualifying person filed a joint return
- The taxpayer or spouse, if filing jointly, could be claimed as a dependent on someone else's return
Q1: How do I claim the credit?
A1: To claim the credit, you will need to complete Form 2441, Child and Dependent Care Expenses, and include the form when you file your Federal income tax return. In completing the form to claim the credit, you will need to provide a valid taxpayer identification number (TIN) for each qualifying person. Generally, this is the social security number for the qualifying person.
You should keep records of your work-related expenses. Also, if your dependent or spouse is not able to take care of himself or herself, your records should show both the nature and length of the disability.
Q2: What information do I need from my care provider to claim the credit?
A2: You must identify all persons or organizations that provided care for your child, dependent, or spouse. To identify the care provider, you must give the provider’s name, address, and taxpayer identification number (TIN). You can use Form W-10, Dependent Care Provider’s Identification and Certification, to request this information. If the care provider information you give is incorrect or incomplete, your credit may not be allowed. However, if you can show that you used due diligence in trying to supply the information, you can still claim the credit.
Q3: What does “physically or mentally not able to care for oneself” mean?
A3: Persons who can’t dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Persons who must have constant attention to prevent them from injuring themselves or others also are considered not able to care for themselves.
Q4: For 2021, what percentage of my work-related expenses are allowed as a credit?
A4: The percentage of your work-related expenses allowed as a credit depends on your income (and your spouse’s income in the case of a joint return). The maximum percentage of your work-related expenses allowed as a credit for 2021 is 50 percent. The 2021 Instructions for Form 2441 and IRS Publication 503, Child and Dependent Care Expenses for 2021 both will contain a chart indicating the percentage of work-related expenses allowed as a credit at each income level.
Q5: I have two qualifying persons. In 2021, I incurred more than $16,000 in work-related expenses for the care of one of them, and none for the other. Am I subject to the higher $16,000 work-related expenses limitation for two or more qualifying persons, even though my expenses were only for the care of one qualifying person? Or am I subject to the lower $8,000 work-related expenses limitation for one qualifying person?
A5: Because you have two or more qualifying persons, you are subject to the higher $16,000 work-related expense limitation, regardless of how the expenses are allocated among the qualifying persons.
Q6: For 2021, can I take the full credit even if my credit exceeds the amount of taxes I owe?
A6: Yes. For 2021, the credit is refundable for eligible taxpayers. This means that even if your credit exceeds the amount of Federal income tax that you owe, you can still claim the full amount of your credit, and the amount of the credit in excess of your tax liability can be refunded to you.
Q7: What do I need to do for the credit to be refundable for 2021?
A7: You must pay the work-related expenses incurred in 2021 by December 31, 2021, and meet the special residency requirements for the credit to be refundable for 2021.
Q8: What are the special residency requirements for the refundable portion of the credit?
A8: To be eligible for the refundable portion of the credit for 2021, you (or your spouse in the case of a joint return) must have your main home in one of the 50 states or the District of Columbia for more than half of the tax year. Your main home can be any location where you regularly live. Your main home may be your house, apartment, mobile home, shelter, temporary lodging, or other location and doesn’t need to be the same physical location throughout the taxable year. If you are temporarily away from your main home because of illness, education, business, vacation, or military service, you are generally treated as living in your main home during that time.
Q9: What qualifies as a work-related expense?
A9: A work-related expense is an amount you (or your spouse in the case of a joint return) pay for the care of a qualifying person, or for household services if at least part of the services is for the care of a qualifying person, in order for you to work or look for work. Your work can be for others or in your own business or partnership. It can be full or part-time. It also includes actively looking for work. However, if you do not find a job and have no earned income for the year, you cannot take this credit.
Source:
https://www.irs.gov/newsroom/understanding-the-child-and-dependent-care-credit
https://www.irs.gov/newsroom/child-and-dependent-care-credit-faqs
https://www.irs.gov/pub/irs-pdf/p5585.pdf
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