One of the most consequential pieces of legislation passed by Congress in recent memory was the $1.9 trillion American Rescue Plan. This was the economic rescue package that President Biden signed into law back in March. And it funded a new wave of stimulus checks, for one thing, among a host of other benefits — like paying for a new child tax credit many people might not even be aware of.
You might already know that a new six-month series of stimulus checks is about to begin, in July. This will total up to $3,600, when paired with a tax credit next year, for each eligible child a family has. The expansion of the federal child tax credit is what made this particular benefit possible, and you can read more about that here. Meanwhile, the IRS is still sending out new stimulus checks for up to $1,400. And there are still plenty of other benefits from the American Rescue Plan to learn about. Like the expanded Child and Dependent Care Credit, which we’ll talk more about below.
New child tax credit — details, eligibility
Here’s how the personal finance news site Nerdwallet explains it. For the 2021 tax year only, ”the Child and Dependent Care Credit can get you up to 50% of up to $8,000 of child care and similar costs for a child under 13, a spouse or parent who cannot care for themselves, or another dependent so that you can work (and up to $16,000 of expenses for two or more dependents).” So, what if you have two or more eligible dependents? That means a working family that meets the income requirements could get an additional stimulus payment up to $8,000 as a tax credit. Again, for this year only.
Another important detail to know about this dependent care and child tax credit is who’s eligible. According to Kiplinger’s, every family with an adjusted gross income of no more than $125,000 can get this tax credit for child and dependent care expenses. It will only cover 50% of their qualifying expenses, however. And that number drops to 20% for incomes between $125,001 and $183,001.
Other important things to know
As the name of this tax credit implies, it’s not just for child care expenses. It also makes eligible expenses tied to the care of a spouse who’s not able to care for themselves. And the same for certain other dependents who live with you.
Importantly, there are also several tests you must meet to claim this credit. According to the folks at TurboTax, you (and your spouse, if applicable) must have “earned income,” from a job. If you’re married, you must file a joint tax return. Also, you’re required to provide details like the name and Taxpayer ID Number of the person who provided the care.