Stimulus Update: While Parents Wait for Boosted Child Tax Credit to Return, There's Another Windfall in Play
- Families that pay for childcare can claim a special credit on their taxes.
- For 2021, that credit increased, and families could be in line for up to $8,000 back from the IRS.
The expanded Child Tax Credit isn't happening for now. But parents may be entitled to another windfall.
The fact that lawmakers have failed to keep the boosted Child Tax Credit in place for 2022 has served as a major blow for families -- especially in light of rampant inflation and soaring gas prices.
Last year, the maximum value of the Child Tax Credit rose from $2,000 to $3,600 for children under age 6 and $3,000 for those aged 6 to 17. The credit also changed to become fully refundable, allowing families with no tax liability to claim their money in full. Plus, half of the 2021 credit was paid out in monthly installments that hit bank accounts between July and December.
Unfortunately, those monthly payments have been off the table this year. But families with children may still be in line for a pretty large payday -- if they claim the right credit on their 2021 tax returns.
Another big credit got a boost
Last year, the Child Tax Credit got a lot of press for its major enhancement. But there's another lesser-known credit that rose substantially for the 2021 tax year -- the Child and Dependent Care Credit.
The Child and Dependent Care Credit lets parents who pay for childcare so they can work claim a portion of their expenses. Prior to 2021, parents could claim a portion of up to $3,000 in childcare costs for one child, or a portion of up to $6,000 in childcare costs for two or more children.
In 2021, parents could claim a portion of up to $8,000 in childcare costs for one child, or a portion of up to $16,000 in childcare costs for two or more children. Now the portion families can claim depends on their income, and it maxes out at 50% in 2021 (in previous tax years, it maxed out at 35%). But what this means is that some parents who paid for childcare last year may be eligible for an $8,000 tax credit courtesy of the Child and Dependent Care Credit.
What's even better is that the Child and Dependent Care Credit was made fully refundable for 2021, just like the Child Tax Credit. And so a family with no tax liability can still collect up to $8,000 in full.
Don't give up that money
Many families are really bemoaning the loss of the Child Tax Credit and the monthly payments it made available to households in need. But those who paid for childcare last year should make sure to claim what they're owed in the form of the Child and Dependent Care Credit.
To do so, a 2021 tax return is required. Some lower earners aren't required to file a tax return, but doing so is the only way to get what could be up to an $8,000 payday.
Those who need help filing their taxes can look into free programs like VITA. But it pays to move quickly. The April 18 tax-filing deadline is under three weeks away, and those who volunteer their time to help others prepare taxes may be getting increasingly booked up.
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