WASHINGTON — Parents or caregivers who paid for child care or, for example, adult day care for a qualifying family member can expect a bigger refund when claiming these costs this tax season, and the credit is now open to lower-income families as well.
Families can claim up to $8,000 in expenses for one child or dependent, including for traditional care centers, summer or day camps, babysitters, and before- or after-school care. The amount families can claim increases for more than one child or dependent.
Those making up to $125,000 can receive up to 50% of those expenses as a credit for tax liability or as a refund. The percentage available decreases for households making up to $438,000.
Hypothetically, a family that earned $75,000 and spent $5,000 on child care last year would be eligible for a $2,500 credit, according to an example outlined by the National Women’s Law Center, which published guidance materials on the topic.
The credit is also fully refundable for 2021, meaning that those who don’t make enough income to owe taxes can still claim child or dependent care expenses.
“[Low-income] families still need child care, and they might have other subsidies that help pay for part of that child care, but they are still paying a portion of that and they still need help with that portion,” said Kristie Weiland Stagno, of the Pittsburgh-based nonprofit Just Harvest that provides tax preparation for low-income individuals and is in support of the expanded credit.
Eligible families include those with children under 13 who need child care while parents or guardians go to work, seek work or attend school. Those who pay for care for a spouse or other dependent adult who isn’t able to mentally or physically care for themselves are also eligible to claim the costs.
The Child and Dependent Care Tax Credit was expanded only for 2021 costs under the American Rescue Plan Act, the federal government’s $1.9 trillion COVID-19 relief package passed last March.
In prior years, the credit households received for child or dependent care expenses was lower and was not available to all.
The White House issued a news release Tuesday touting the expansion of the credit that “will help families meet the high cost of care.”
The release was sent and additional online government resources about the credit were set up after Sen. Bob Casey, D-Pa. and 12 other senators criticized the administration in a letter last Thursday for seeming to make “no meaningful effort to raise awareness” about the credit.
“Many families are eligible to receive more money from the expanded [Child and Dependent Care Tax Credit] than from the Child Tax Credit. Failing to inform families of its existence would be a costly mistake,” the letter read.
Mr. Casey is championing his own bill that calls for subsidies for child care.
Democrats are still reeling after the collapse of talks on President Joe Biden’s Build Back Better bill, which failed to garner the necessary votes in the U.S. Senate late last year when negotiations with Sen. Joe Manchin, D-W.Va. fell through. The legislation promised funding for child care and early childhood education, as well as making permanent the separate child tax credit.
The care credit can be claimed in addition to the child tax credit and the earned income tax credit, both of which were also expanded only for 2021.