The so-called Child and Dependent Care Credit is a stimulus benefit that many individuals are likely unaware of. Here are the things you should know.
Child and Dependent Care Credit
What Is Child and Dependent Care Credit?
The child and dependent care credit is a tax benefit that may assist you in paying for the care of eligible children and other dependents or qualified individuals. The credit is based on your income and a proportion of the costs you spend to care for eligible people so you may go to work, search for employment, or go to school, per BGR.
The American Rescue Plan Act of 2021, passed on March 11, 2021, increased the credit to $4,000 for one eligible person and $8,000 for two or more qualifying people for 2021, and it is possibly refundable so you may not have to owe taxes to claim the credit provided you satisfy the other criteria.
Moreover, this implies that more taxpayers will be eligible for the credit for the first time and that the credit amount will be higher for many taxpayers than in previous years. However, individuals with an adjusted gross income of more than $438,000 are ineligible for this benefit even if they were previously qualified, according to an article published on the website of the Internal Revenue Service.
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Eligibility for the Child and Dependent Care Credit and How to Claim It
If you or your spouse in the event of a joint return pay someone to care for one or more qualified people so that you may work or search for employment and your income falls within the credit's income limitations, you are entitled to claim this credit. To claim the credit, you must submit a joint return if you are married. If you are officially separated or living separately from your spouse, you may be eligible to claim the credit by filing a separate return.
According to a published article in Kiplinger, to claim the credit, you'll need to fill out Form 2441, Child and Dependent Care Expenses, and attach it to your Federal income tax return. You must supply a valid taxpayer identification number (TIN) for each eligible individual when filling out the form to claim the credit. This is usually the eligible person's social security number.
It is also important to note that you have to keep track of all of your work-related expenditures. In addition, if your dependant or spouse is unable to care for themselves, your records should include the type and duration of the impairment. Q3 and IRS Publication 503, Child and Dependent Care Expenses, include additional documents you should maintain to support your claim for the credit.
What Percentage of Work-Related Expenses Are Allowed as a Credit?
The proportion of your work-related expenditures that may be deducted as credit is determined by your income and, in the event of a joint return, your spouse's income. In 2021, you may claim a maximum of 50 percent of your work-related expenditures as a credit. A chart showing the proportion of work-related expenditures permitted as a credit at each income level will be included in both the 2021 Instructions for Form 2441 and IRS Publication 503, Child and Dependent Care Expenses for 2021. In January 2022, the IRS expects the 2021 Instructions for Form 2441 and the 2021 Publication 503 to be available.
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