You Can Get Up to $8,000 Back on Your Tax Return if You Paid for Child or Dependent Care in 2021. Here’s How

American families pay between $8,000 and $10,000 per child for annual child care costs, a 2021 Treasury report found, citing data from the Child Care Aware of America. But this year, parents and other qualifying caretakers can get a big tax break on care costs.



The Child and Dependent Care Credit, a tax credit for parents and other caregivers with qualifying dependents, was expanded by more than double thanks to 2021’s American Rescue Plan. This is similar to the expanded Child Tax Credit under the American Rescue Plan, which was also a temporary expansion for tax year 2021.

The expanded Child and Dependent Care Credit allows eligible taxpayers to claim a credit worth up to $4,000 in care expenses paid for one qualifying dependent or $8,000 for two or more dependents. 

Here’s what you need to know about the expanded credit, eligibility, and how to claim it on this year’s tax return. 

What is the Expanded Child and Dependent Care Credit? 

The Child and Dependent Care Credit is a tax credit for the expenses you paid for the care of a dependent — such as a babysitter or daycare — which allowed you to work, look for work, or attend school.

This year, you can claim up to $8,000 in expenses paid for one dependent or $16,000 in expenses for two or more dependents, and get a credit worth up to 50% of those expenses. The credit begins to phase out after you reach an adjusted gross income (AGI) of $125,000, and those with an AGI over $438,000 are ineligible.

Previously, the Child and Dependent Care Credit allowed taxpayers with dependents to claim up to $3,000 in care expenses for one qualifying dependent and $6,000 for two or more dependents. And instead of receiving up to 50% back, you could get up to a 35% return on care expenses — up to $1,050 for one dependent and up to $2,100 for two or more dependents. 

Another big difference with the expanded credit is that it’s refundable for the first time, says Duke Alexander Moore, an enrolled agent and founder of Duke Tax Online. A nonrefundable credit, like the Child and Dependent Care Credit was before, only subtracts from your tax liability. That means if you owe less in taxes than the credit is worth, you may not get the full amount you qualify for. You can receive the full refundable credit, on the other hand, even if the credit is worth more than you owe — you’ll receive the remainder as a refund.

Who is Eligible for the Child and Dependent Care Credit? 

There are a few criteria you must meet to claim the Child and Dependent Care Credit. First, the credit is specifically for dependent care expenses you paid so you could work, look for work, or attend school. As a result, you must have received earned income. There are some exceptions, such as if you were a full time student. However, other forms of income (such as child support or unemployment benefits) do not count, according to Moore. 

And if you’re married filing jointly, both spouses must have earned income. If one spouse is working, but the other spouse is not working, not looking for work, and not going to school at least half the time, you won’t be eligible, says Joshua Giminez, a certified public accountant and founder of Fair Winds Tax & Financial in Columbus, OH. 

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