What is childcare tax credit?
As childcare costs skyrocket and childcare places become even more scarce due to pandemic restrictions, the increased childcare tax credit is a welcome relief to parents doing their best to make ends meet.
As part of President Biden’s American Families Plan act, he has increased the childcare tax credit families receive. Starting this July, parents will receive monthly childcare tax credits for each eligible dependent child aged 17 and under.
While a $300 monthly child tax credit is far from the average monthly childcare center cost of $896.58 and $657.25 for family-based childcare center, President Biden has promised to extend the new childcare tax credits until 2025.
2021 Child Tax Credits eligibility
Parents with children aged 17 years or under are mostly eligible for the new child tax credit.
Parents with children aged 5 and younger can qualify for a $300 monthly child and dependent care credit while older children aged 6-17 years old will be given a $250 monthly payment. The monthly tax credits will be paid until December 2021 with the first 6 months paid in April 2022.
Now, the question is, are you qualified to receive the $3,600 – $3,000 childcare tax credit?
Go over this list of eligibility qualifications for the 2021 child tax credits and see for yourself.
- You are eligible for a childcare tax credit if you have a dependent child.
- The child is aged 17 years old or under until the end of 2021.
- The child is a dependent on your tax returns.
- The child does not file a tax return.
- The child does not provide for his or her own needs.
- The child is a U.S. citizen, U.S. national, or U.S. resident alien.
- The child has lived with you for more than half of the year.
An adopted child is also qualified to receive the tax credit, granted that you, the parent, is a U.S. citizen or U.S. national and the adopted child has lived with you and claimed as a dependent in your return.
For a child with parents both claiming the child as a dependent in the past, it won’t be the case for the new child tax credit. Only one parent will be eligible to receive the child and dependent care credit. Parents should also be wary of overclaiming, else the IRS will ask you to return any overpayments.
The Biden administration has made these qualifications as accommodating as possible to ensure no one is left behind and broke from paying childcare.
Child tax credits payments threshold
President Biden started his administration with a grand plan of helping American families nationwide afford childcare. With a promise to slash off childcare spending down to around 7% of a family’s household income, the IRS has released a new child tax credit that helps families with children offset their childcare costs.
For children aged 5 years old and below, a family will receive $3,600 for each qualifying child.
For children aged 17 years old to 6 years old, a family will receive $3,000 for each qualifying child.
However, parents should note this amount may vary depending on your filed household income.
If you are one of any of these eligible groups, you will most likely receive the full amount for each qualifying child:
- Families with a single parent as head of household with annual income under $112,500
- Married couples with annual income under $150,000
- Other families with annual income under $75,000
For higher income families, you may receive at least $2,000 for chld tax credits if you are:
- Family with a single parent as head of household with annual income under $200,000
- Married couples with annual income under $400,000
- Other families with annual income under $200,000
For parents who share custody of a child, only one parent will be eligible to receive the childcare tax credit. And if we are going to follow the IRS eligibility guidelines, it would be the parent who the child has lived with for more than half of the year instead of who pays for child support.
READ MORE: Child care provider salary in California and the United States
Child tax credits payments: schedule
This July 15, over 92% of American families will start receiving their monthly child care tax credit. That’s if they did not unenroll from advance payments.
Originally, tax credits are applied when one file their income tax returns sometime around April of the following year; however for Biden’s American Families Plan act and its increased child care tax credit, parents can start receiving monthly payments starting this July.
Child tax credit portals: IRS online tools
But how does one get qualified and where does one file for child care tax credit? Here are the IRS portals one should visit.
While the child care tax credit has been expanded to ensure that almost all families are entitled to it, there may be some instances where one wouldn’t be qualified. The eligibility requirements are basic, however with certain exceptions. To ensure you do qualify, head over to IRS Eligibility Assistant, answer some questions, and you’ll determine whether you qualify or not.
The default payment schedule for the new tax child care credit is for families to receive monthly payments until the end of 2021. After which the first six months will be credited when they file their returns sometime around April. However, the IRS allows eligible parents to unenroll themselves from the monthly payment scheme and receive their child care tax credit in full when they file for their returns.
If the eligible parent to receive the tax credit is a non-filer, the IRS has also set up a portal. Now, who are considered non-filers? They usually are not not required to file a tax return, didn’t file one and don’t plan to.
For eligible parents who filed tax returns for 2020 or 2019 and have a declared dependent, the IRS will automatically send you an advance monthly payment for your 2021 child tax credits. If you have a bank account in their file, you will receive a check for the tax credit.
So, have you found out whether you’re elgibile for the child tax credit? If so, head over to the IRS portals to manage your payment schedules.
Hopefully, these new child tax credit payments will help parents afford childcare and go back to the workforce with confidence and peace of mind that their children are receiving quality childcare without hurting their pockets.
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