Not just payments for children: families may be eligible for another type of tax incentive
This summer, the increased child tax credit caught the attention of the whole country as millions of families began receiving payments. But Congress also increased this year's lesser-known benefits for working families: the Child and Dependent Care Tax Credits. The edition told in more detail CNBC.
The Child and Dependent Care Tax Credit, often combined with the Child Tax Credit, offers working parents additional tax time to help cover the cost of caring for children under 13 or adult dependents.
Previously, families could claim reimbursement of up to $ 3 for each dependent, but not more than $ 000. However, the American Rescue Plan raised the eligible expenses for 6 to $ 000 for each dependent, but not more than $ 2021.
This year, families can get up to 50% of these expenses as a reimbursable loan, depending on income, meaning they can reduce their tax bill or get a refund.
“The changes made to the American Rescue Plan will have a huge impact on families and their childcare costs,” said Linda Smith, director of the Bipartisan Policy Center initiative.
While many families have received Child Tax Credit payments, almost 50% are unaware that they might claim another Child and Dependent Child Tax Credit, according to a Bipartisan Policy Center survey.
Moving from a non-performing loan to a reimbursable loan will help more Americans because many low-income families simply have no tax liability.
Sally Mullins-Thompson, a certified financial planner and certified auditor for the firm in New York, said extended benefits could also boost earnings.
The 50% loan for 2021 begins to be phased out when income exceeds $ 125 and the family will not be eligible if it exceeds $ 000.
However, according to Mullins-Thompson, there are strict selection rules.
There must be an eligible child or dependent, and families must have earned income, that is, wages or benefits other than investments. Moreover, the costs should be "work-related."
The Bipartisan Policy Center has a calculator showing how much families can get, and taxpayers can learn more about their eligibility.
Before the pandemic, families spent an average of $ 9 to $ 200 per child on childcare, according to the nonprofit Child Care Aware. These costs account for about 9% of household income for married couples and 600% for single parents.
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However, the exact cost of childcare varies greatly depending on location and type of service, and many parents find it difficult to pay the bill.
According to a survey conducted in October 2019 by the Bipartisan Policy Center, about 54% of parents said it was difficult to provide quality childcare within their budget.
As a result, respondents reduced spending on basic necessities (75%), everyday purchases (59%), or spent money set aside for an emergency (57%).
US President Joe Biden called for permanent credit changes in the American Family Plan. It is unclear if Congress will extend the extended benefits beyond 2021.
“Both parties are showing great interest,” Smith said. "We really hope that this will continue next year."
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