Important Things to Know About Child and Dependent Tax Credits
Updated: Mar 4
2021 Child Tax Credit
If you have children under the age of 18, you might have received Child Tax Credit Payments beginning in July 2021. The Child Tax Credit Payments were advance monthly payments of half of your total 2021 child tax credit. The American Rescue Plan, enacted last spring, temporarily raised the 2021 child tax credit to $3,600 for each qualifying child ages 5 and under and $3,000 per child between 6 and 17 years old. In previous years, the child tax credit amount was $2,000 per child. More information on the Child Tax Payments can be found in our September, 2021 blog article, Important Things You Should Know About Child Tax Credit Payments.
Some people opted out of receiving some or all their Child Tax Credit Payments so that their 2021 tax filing would result in either a larger tax refund or a smaller tax bill.
Eligible working parents who received the six-monthly Child Tax Credit Payments will be able to subtract the remaining half of their child tax credit (between $1,500 and $1,800 per child) from their tax liability.
Eligible working parents who opted out of all or some of their Child Tax Credit Payments will also be able to subtract half of their child tax credit from their tax liability, plus whatever part of the first half they didn't already receive. So, in other words, individuals who opted out of Child Tax Credit Payments before the first payment was received will be eligible to subtract the full child tax credit from their tax liability. Individuals who received one or more Child Tax Credit Payments will be eligible to subtract the amount of child tax credit from their tax liability that they hadn't already received.
For more information on the Child Tax Credit, click here.
2021 Child and Dependent Care Credit
In addition to the child tax credit, the Child and Dependent Care Credit was also supercharged under the American Rescue Plan, providing up to $8,000 in tax credits - nearly four times the previous limit of $2,100.
Most working parents and individuals who paid for the care of dependents under the age of 13, or a spouse or dependent of any age who couldn't care for themselves and who lived with you for more than six months of the year, are eligible for a Child and Dependent Care Credit.
The expanded tax break allows families to claim a credit for half of their childcare expenses, with a maximum total credit of $4,000 for one qualifying child or dependent or $8,000 for two or more qualifying children or dependents. Prior to the American Rescue Plan, the credit limit for parents with one qualifying child or dependent was $1,050 and $2,100 for two or more children or dependents.
Like the Child Tax Credit, there are income limits on the amount that can be deducted from tax liability. Eligible families with an annual gross income of $125,000 or less will get a credit worth 50% of their qualifying expenses. The percentage is gradually reduced from 50% to 20% for families with an annual gross income between $125,001 and $183,001 and stays at 20% for families with an annual gross income between $183,001 and $400,000. Families with an annual gross income of $438,000 are not eligible for a credit.
For more information on the Child and Dependent Care Credit, click here.