Some Americans are no doubt still waiting to receive their $1,400 stimulus check as either an electronic bank deposit or a paper check in the mail, following passage of the $1.9 trillion stimulus legislation that President Biden signed back in March. And even outside of those direct stimulus payments, there are many other stimulus-related benefits, tax breaks, and direct payments that are coming to Americans soon — such as the expanded federal child tax credit that will be paid to millions of American families this year, in the form of a monthly check for each eligible child starting on July 15.
Meanwhile, here’s a new stimulus update to be aware of, in the form of yet another benefit that millions of taxpayers will be able to take advantage of. It’s not a check, at least not at the outset, in the same way that the previous three stimulus payments came in the form of $1,200, $600, and $1,400 checks, nor is it even really a “payment” at all. It’s a tax credit, one that will reduce your tax obligations for 2021 if you have payments related to the care of a child or other dependent. If you care for one child or dependent, you can claim expenses of up to $8,000, and up to $16,000 if you care for more than one child or dependent. Here’s the thing, though — the way this tax credit works, you can get a refundable credit of up to 50% of either of those two amounts, whichever one applies to you. So what does that mean, exactly?
Well, this is a tax credit that will help you out in 2022, when it’s time to file your 2021 tax return next year. Depending on the number of children or dependents you care for (and have expenses as a result of caring for), you can reduce your tax obligation for 2021 by as much as $8,000. Let’s say you’ve claimed $16,000 in expenses (if that includes you next year, then keep a figure of $8,000 in mind, since as we noted above 50% is the maximum amount you can claim here).
Now let’s say you end up owing $4,000 once you’ve finished preparing your federal tax return next year. You’re in luck at that point, because the maximum $8,000 refundable credit wipes out that amount of tax you owe and leaves you with a nice bit of extra change in the form of a refund coming your way.
A refundable tax credit, which is what this child and dependent care tax credit actually is, means you receive money even if end up owing nothing to the IRS after preparing your tax return.
You can read more about the so-called “child and dependent care credit,” which has been increased for 2021 only, at the IRS website here. Some additional important points to be aware of in order to receive this credit:
- You, the caregiver, must have earned income for the year, such as from your employer or unemployment income.
- For a taxpayer or household with adjusted gross income above $125,000, the 50% of expenses you are able to claim starts to phase out. Meantime, the dependents that you’re caring for here have to be under age 13, or be unable to care for themselves if they’re 13 or older. Also, they must have a tax ID number like a Social Security number.