Child & Dependent Care for 2021
The ARPA expanded the child and dependent care credit for one year (2021).
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Makes the credit fully refundable if the principal place of abode of the taxpayer (or at least one spouse on a joint return) is in the U.S. for more than half the year.
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The credit is a full 50% of the expenses before phaseout.
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The maximum expenses that can be used to compute the credit are increased to $8,000 for one qualified individual and $16,000 for two or more qualified individuals. As under prior law, a dependent child qualifies if under age 13.
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The maximum credit is $4,000 (50% of $8,000) for one eligible individual, and $8,000 (50% of $16,000) for two or more eligible individuals.
Phaseout
The 50% credit rate begins to phase out when the taxpayer’s AGI reaches $125,000 (the phaseout rate is one percentage point for each $2,000 above the $125,000 threshold), but the rate isn’t reduced below 20% until AGI reaches $400,000, at which point the credit phaseout picks up again.
Employer-Provided Dependent Care Assistance
The Act also changes, for 2021 only, the exclusion for employer provided assistance for dependent care, by increasing the maximum amount of excludable earnings from $5,000 to $10,500 for a married couple filing jointly ($5,250 for married filing separate).
Other Provisions
Except for the enhancements listed above, the other provisions pertaining to the child and dependent care credit apply to all years.