Tag Archives: Child Care

Changes to the Child Tax Credit

With the recently enacted American Rescue Plan, there were changes made to the child tax credit that may benefit many taxpayers, most notably:

  • The amount has increased for certain taxpayers
  • The credit is fully refundable
  • The credit may be partially received in monthly payments
  • The qualifying age for children has been raised from 16 to 17

The IRS will pay half the credit in the form of advance monthly payments beginning July 15 and ending Dec. 15. Taxpayers will then claim the other half when they file their 2021 income tax return.

How much will you receive?

The credit for children ages five and younger is up to $3,600 with up to $300 received in monthly payments. The credit for children ages 6 to 17 is up to $3,000 with up to $250 received in monthly payments.

How do you qualify?

The following criteria must be met to quality:

  • A 2019 or 2020 tax return was filed and claimed the child tax credit, or your information was provided to the IRS using the non-filer tool
  • Have a main home in the U.S. for more than half the year or file a joint return with a spouse who has a main home in the U.S. for more than half the year
  • Care for a qualifying child who is under age 18 at the end of 2021, and who has a valid Social Security number
  • Have a modified adjusted gross income less than certain limits:
    • $75,000 for single filers
    • $150,000 for married filing jointly filers
    • $112,500 for head of household filers

The credit begins to phase out above those thresholds. Higher-income families (e.g., married filing jointly couples with $400,000 or less in income or other filers with $200,000 or less in income) will generally get the same credit as prior law (generally $2,000 per qualifying child) but may also choose to receive monthly payments.

You won’t need to do anything to receive payments as the IRS will use information on file to start issuing payments.

IRS’s child tax credit update portal

The IRS has a child tax credit and update portal where you can update your information to reflect any recent changes to things like filing status or number of children. You can also opt out of the advance payments and check on payment status in the portal. If you file a joint return, both you and your spouse will need to opt out, otherwise a portion of the payment will still be issued. If you prefer not to opt out online, you can also call the IRS at 1-800-908-4184.

We’re here to help

If you have any questions or need help making decisions based on your specific situation, please contact our office today at 205-663-8686 or cris@essential-solutions.biz.

Thank you for trusting us with your tax preparation and planning needs.

Get Credit for Child and Dependent Care This Summer

Many parents pay for childcare or day camps in the summer while they work. If this applies to you, your costs may qualify for a federal tax credit that can lower your taxes. Here are 10 facts that you should know about the Child and Dependent Care Credit:

  1. Your expenses must be for the care of one or more qualifying persons. Your dependent child or children under age 13 usually qualify. For more about this rule see Publication 503, Child and Dependent Care Expenses.
  2. Your expenses for care must be work-related. This means that you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they’re physically or mentally incapable of self-care.
  3. You must have earned income, such as from wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care. This rule also applies to you if you file a joint return. Refer to Publication 503 for more details.
  4. As a rule, if you’re married you must file a joint return to take the credit. But this rule doesn’t apply if you’re legally separated or if you and your spouse live apart.
  5. You may qualify for the credit whether you pay for care at home, at a daycare facility or at a day camp.
  6. The credit is a percentage of the qualified expenses you pay. It can be as much as 35 percent of your expenses, depending on your income.
  7. The total expense that you can use for the credit in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.
  8. Overnight camp or summer school tutoring costs do not qualify. You can’t include the cost of care provided by your spouse or your child who is under age 19 at the end of the year. You also cannot count the cost of care given by a person you can claim as your dependent. Special rules apply if you get dependent care benefits from your employer.
  9. Keep all your receipts and records. Make sure to note the name, address and Social Security number or employer identification number of the care provider. You must report this information when you claim the credit on your tax return.
  10. Remember that this credit is not just a summer tax benefit. You may be able to claim it for care you pay for throughout the year.

For more on this topic, see Publication 503 on IRS.gov.

IRS Special Edition Tax Tip 2014-16, June 11, 2014

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