Pay for Childcare? There Could Be Up to $8,000 Coming Your Way

A parent putting on their child's shoes sitting in front of the open front door of their house.

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Here's some good news for parents.

Key points

  • A lot of parents know the Child Tax Credit was boosted in 2021.
  • Another credit -- the Child and Dependent Care Credit -- also increased and is available to parents who paid for childcare last year.

Last year, the Child Tax Credit got a major enhancement that increased its maximum value from $2,000 in 2020 to $3,000 in 2021 for children age 6 to 17 and $3,600 for children under age 6. The boosted Child Tax Credit was also made fully refundable, so families with no tax liability are able to claim it in full. Half of the credit was paid in monthly installments last year, meaning U.S. families saw consistent deposits in their bank accounts from July through December.

But while the expanded Child Tax Credit may have gotten all of the press, there's another child tax credit that got a boost for 2021. And if you paid for childcare last year, it's a credit you'll definitely want to know about.

A higher Child and Dependent Care Credit

Like the Child Tax Credit, the Child and Dependent Care Credit existed prior to 2021. But whereas the former credit applies to families who have children, the latter credit only applies to families who pay for childcare so they can work or look for work.

The Child and Dependent Care Credit allows you to claim a portion of your childcare expenses on your taxes, the extent of which is based on your income. In 2020, you could claim a portion of up to $3,000 in childcare costs for a single child or a portion of up to $6,000 in childcare costs for two or more children under age 13. The portion you could claim hinged on income and ranged from 20% to 35%.

If that seems confusing, here it is in a nutshell: For 2020, the Child and Dependent Care Credit was worth up to $2,100, or 35% of $6,000 in childcare costs. The credit was also non-refundable, so if you had no tax liability, it wouldn't pay you anything.

For the 2021 tax year, the credit is worth more, and it's also fully refundable, just like the Child Tax Credit. Furthermore, the amount of childcare expenses you can claim is higher.

For 2021, you can claim a portion of up to $8,000 in expenses for one child and up to $16,000 in expenses for two or more children. You can also claim up to 50% of your childcare costs depending on your income, as opposed to being capped at 35% of your costs. (The percentage of costs you're able to claim based on income still bottoms out at 20% for 2021.)

If you're a lower earner and are eligible to claim 50% of your childcare costs, and you paid $16,000 or more for childcare for two or more kids in 2021, you could be in line for an $8,000 credit when you file your 2021 tax return. And even if you don't owe the IRS a dime, you should have an $8,000 payday coming your way due to the refundable nature of the Child and Dependent Care Credit for 2021.

How to get your money

To claim the Child and Dependent Care Credit, you must file a 2021 tax return. You must also make sure to have copies of your childcare expenses so you know the right amount to claim.

It's also worth noting that while many people who claim the credit will do so due to childcare expenses, you can also claim the credit if you have a non-child dependent who's unable to care for themself -- for example, an adult child who can't live alone and needs care due to a disability. In that case, you can deduct the cost of paid care for that dependent.

You have until April 18 to submit your 2021 tax return, but if you're eligible for the Child and Dependent Care Credit, you may want to file much sooner. Thanks to the expanded credit, you might have a sizable refund coming your way, and that's a payday you probably don't want to delay.

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