Who will qualify for the Child and Dependent Care Credit?
The new stimulus bill provides lots of direct support for American families, but you could also be eligible for a tax reduction to help with the cost of childcare.
The American Rescue Plan aims to provide financial support for those who have suffered the most during the pandemic, with children in low-income families at particular risk.
Since April 2020, the proportion of children with at least one unemployed parent has remained above the levels from the peak of the Great Recession. It is thought that between 7 million and 11 million children have experienced food shortages during the pandemic.
As well as the direct support offered in the stimulus bill, there are other existing government programmes that could see parents given thousands of dollars worth of tax breaks. The Child and Dependent Care Tax Credit has been around for 45 years, but who will be able to receive the support?
What is the Child and Dependent Care Tax Credit?
The Child and Dependent Care Tax Credit (CDCTC) was introduced in 1976 to help working families cover the expenses associated with the care of children and adult dependents.
The amount on offer was increased in 2001 and 2012 so the current allowance covers the cost of between 20-35% of qualified expenses. Parents and guardians can make claims on expenses worth up to a maximum of $3,000 for each of a maximum of two qualifying children.
Therefore the total amount of child care expense that filers can claim is $6,000, meaning that working parents can claim a maximum of $2,100 to be put towards the cost of childcare (35% of $6,000).
The IRS explain the entitlement as “a percentage of the amount of work-related expenses you paid to a care provider for the care of a qualifying individual. The percentage depends on your adjusted gross income.”
Want to know how much you could receive from the Child and Dependent Care Tax Credit? The IRS have an online tool to calculate your claim.
When will the new Child Tax Credits arrive?
The CDCTC is far from the only tax relief offered to parents and the Biden administration has already introduced a new Child Tax Credit programme which ups the entitlement considerably. The new credit programme will see the support paid as a monthly direct deposit, rather than a one-off tax refund as was previously the case.
This change will take some time for the IRS to implement and the White House have confirmed that they expect Child Tax Credit payments to begin from July onwards. This is not helped by the fact that the IRS are also both overseeing the stimulus check distribution and are in the midst of tax season 2021.
Not only does the new-look Child Tax Credit programme provide more money to more people, there are plans for the increase to be maintained beyond the 12 months currently legislated for. Senate Majority Leader Chuck Schumer has confirmed that making enhanced child tax credits permanent will be a key goal for Democrats in the future.
White House chief of staff Ron Klain told MSNBC recently that President Biden is determined to lay the groundwork for sustained support for families, suggesting that the improved Child Tax Credit programme could be here to stay.
“Some provisions of this bill are temporary by design,” Klain said. “Dealing with the child poverty problem on a permanent basis is an important objective for us.”