If you pay someone to watch your children or dependent while you work, you might get a big tax write-off as a result of the Biden Administration’s American Rescue Plan.
As part of the stimulus relief bill, a big chunk of expenses related to child or dependent care is eligible as a write-off on your taxes due to a temporary expansion of the Child and Dependent Care Tax Credit. This means if you hire a babysitter or pay to have your child in daycare, you could receive a fully refundable tax credit for up to 50% of the cost.
A family earning up to $125,000 will get back up to $4,000 for one child age 13 or younger and up to $8,000 for two or more children when they file taxes for 2021, according to a White House statement. Previously, the maximum credit was $1,200.
Families making between $125,000 and $400,000 will be eligible to receive partial credit.
Because the credit is fully refundable for 2021, low- and moderate-income families will receive the full value of the credit towards their eligible child care expenses regardless of how much they owe on their 2021 taxes. However, you or your spouse must have earned income in order to claim this credit. This is because this particular credit is for those who have to pay for child or dependent care so that they can work.
To claim the credit, you must identify all people or organizations that provided care for your child or dependent and provide their names, addresses and taxpayer identification numbers. Use Form W-10, Dependent Care Provider’s Identification and Certification, to request this information.
The White House has said that if you can show due diligence in trying to supply the information, you can still claim the credit even if the provider doesn’t have a taxpayer ID, as in the case of a babysitter, or refuses to provide their information for Form W-10. In this case, report as much information as you can on Form 2441 instead, and include a letter stating that you requested the provider’s information but did not receive it. Include your name and Social Security number on the letter. Receipts and other records of your child and dependent care expenses can provide additional documentation.
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