The $1.9-trillion stimulus package referred to as the American Rescue Plan Act (ARPA) includes major modifications to the longstanding federal-income-tax child and dependent care credit (CDCC). Unless you remain in the high-income classification, the modifications are beneficial. Theres a catch: the changes are momentary.
Heres what you need to know, after first covering some necessary background information.Child and dependent care credit (CDCC) fundamentals Taxpayers with one or more certifying individuals under their wings are eligible for the CDCC. The maximum credit for folks in this earnings classification was $600 ($3,000 x 35%) for one certifying private or $1,200 ($6,000 x 20%) for two or more.Temporary taxpayer-friendly changes For the 2021 tax year only, the ARPA makes the following temporary changes.Credit is potentially refundable For 2021, the CDCC is refundable for taxpayers who have a primary location of residence in the U.S. for more than half the year. You could then claim the CDCC for “excess” eligible costs under the CDCC guidelines, subject to the appropriate CDCC limit on eligible expenses.

The $1.9-trillion stimulus bundle known as the American Rescue Plan Act (ARPA) includes significant changes to the longstanding federal-income-tax kid and dependent care credit (CDCC). Heres what you need to understand, after first covering some needed background information.Child and reliant care credit (CDCC) fundamentals Taxpayers with one or more qualifying people under their wings are qualified for the CDCC. The optimum credit for folks in this income classification was $600 ($3,000 x 35%) for one certifying individual or $1,200 ($6,000 x 20%) for two or more.Temporary taxpayer-friendly modifications For the 2021 tax year just, the ARPA makes the following short-term changes.Credit is possibly refundable For 2021, the CDCC is refundable for taxpayers who have a principal location of residence in the U.S. for more than half the year. You might then declare the CDCC for “excess” eligible expenses under the CDCC rules, subject to the suitable CDCC limit on eligible expenditures. Be aware that you might be able to claim the kid tax credit for 2021 in addition to taking advantage of the CDCC and the FSA deal.

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