While everyone is waiting for the first of what will be a new monthly series of stimulus checks beginning July 15 - owing to an extension of the federal child tax credit - there is another stimulus payment available to families that is more valuable than all of that. Many families are presumably unaware of its existence.
It's a considerable tax credit on top of a slew of other provisions in President Biden's $1.9 trillion American Rescue Plan, which included funding for a new round of $1,400 stimulus checks as well as an expansion of the federal child tax credit that will give families up to $3,600 for each eligible child. This is the increase of the Child and Dependent Care Credit, and here's all you need to know about it.
Extra stimulus payment may give you $8,000
According to Nerdwallet, the Child and Dependent Care Credit can get you up to 50% of up to $8,000 in 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 for the 2021 tax year only. In other words, if you have two or more qualifying dependents and fulfill the income standards, a working family with two or more eligible dependents might receive up to an $8,000 tax credit - again, for one year only.
Another significant adjustment introduced for 2021 only is that this tax credit may be refundable for people. Let's assume you file your federal tax return for 2021 and you owe $0 in federal taxes, but you calculate that the Child and Dependent Care Credit will provide you a $1,000 credit. When contrasted to a non-refundable tax credit, that money will be paid out to you. A non-refundable tax credit may only be applied to decrease or eliminate your tax obligations in the latter case, thus if you owe no taxes after completing your federal tax return, a non-refundable tax credit will provide you with nothing.
Per BGR, Kiplinger's noted that, despite the name, this tax credit isn't just for child-care expenses. In addition to spending for the care of a child under the age of 13, the credit can be used to care for:
- A spouse who was physically or mentally incapable of self-care and lived with you for more than half of the year, or
- Someone who was mentally or physically incapable of self-care, who lives with you for more than half of the year, and was either your dependent or could have been your dependent if he or she earned $4,300 or more, filed a joint return, or your spouse, if filing jointly, could have been claimed as a dependent on another person's tax return.
Read Also: Missing Stimulus Check: How to Track Your Payment Through The IRS Tool
How to qualify for an extra $8,000 stimulus payment
You can claim up to $8,000 in care-related expenses if you look after one kid or dependent. Those who look after more than one kid or dependent are eligible for up to $16,000 in benefits.
Costs related to caring for a disabled child or relative, such as transportation, daycare, and babysitters, are often eligible costs. Anyone who qualifies might get up to 50% of their money back in the form of a cash refund.
The expenses may be recovered back in your 2021 tax return, but there's a catch: you'll need to start gathering information right away to avoid missing out on any money when you submit your taxes next year, as per The Sun. The tax credit is only available for the tax year 2021, so if you don't claim it this year, you won't be able to claim it next year.
The legislation raised child tax credits and widened child and dependent care credits when Biden's America Rescue Plan was enacted into law in March. Parents will begin receiving monthly payments totaling $3,600 per child from July 15 this year and next year under the plan.
Those who are qualified may choose to get their reimbursement in one check when they file their taxes next year, rather than monthly payments. Last year, the child and dependent care credits were also dramatically enhanced.
The highest amount a family could claim for several children before the bill's signing was $6,000. That figure has now risen to $8,000 for a single child and $16,000 for two or more.
Before the America Rescue Plan, the child and dependent care credit was nonrefundable, which meant you could decrease your tax bill to zero but not get a return on the remaining amount. However, the credit is now refundable, which means that even individuals who do not owe taxes would get money back. Money experts advise anybody qualified to keep a careful record of all spending up to the end of the year, including receipts for childcare and after-school programs.
Related Article: Child Tax Credit Worth $3,600 Coming: How NOT to Miss the Stimulus Check By Doing This Step
