17437: Child and Dependent Care Credit Changes (Drake21)

For tax year 2021, the American Rescue Plan Act of 2021 (the ARP) increases the amount of the credit for child and dependent care expenses.  It also makes the credit refundable for taxpayers that meet certain residency requirements, increases the percentage of employment-related expenses for qualifying care considered in calculating the credit, and modifies the phaseout of the credit for higher earners.

For 2021, you may claim the credit on qualifying employment-related expenses of up to:

• $8,000 (previously $3,000) if you had one qualifying person, or
• $16,000 (previously $6,000) if you had two or more qualifying persons.

The maximum credit increases to 50% of your employment-related expenses:

• up to $4,000 if you had one qualifying person, or
• up to $8,000 if you had two or more qualifying persons.

Under the ARP, the adjusted gross income level at which the credit percentage starts to phase out is raised to $125,000.  For 2021, the credit figured on line 9a of Form 2441 is unavailable for any taxpayer with adjusted gross income over $438,000; however, you may still be eligible to claim a credit on line 9b.  If the taxpayer qualifies for the refundable credit, the amount will be shown on line 10.  If they do not qualify for the refundable credit, but do qualify for the nonrefundable credit, the amount will be shown on line 11. 

For more information about the Child and Dependent Care credit, see the Form 2441 Instructions and Publication 503, Child and Dependent Care Expenses.