Do I Qualify For The Child And Dependent Care Credit in 2022?

The child and dependent care credit can help decrease the financial burden of paying for child care—but only if you meet the requirements, including your income. It’s a helpful tax credit for many families any year but it may be a particular benefit to families who are dealing with reduced salaries from the coronavirus pandemic.

Who Qualifies For The Child And Dependent Care Credit?

Generally if you pay the costs for the care of a child under the age of 13, you can claim this credit for a daycare facility or a babysitter. You may qualify if you file as single, married filing jointly, head of household or you’re a qualifying widow(er).

Taxpayers and their spouses who are filing jointly must have earned income during the 2021 tax year and paid expenses for child care in order for either parent to work or look for a job.

Adults may also qualify for the child and dependent care credit.

“A qualifying person can also be certain individuals who physically or mentally aren’t able to care for themselves and live with the taxpayer for more than half of the year,” says Jonathan Curry-Edwards, principal and a leader of the private client tax services team at Friedman, a New York-based accounting firm.

The IRS has a quiz that you can complete to see if you may qualify for the credit.

How Much is the Child And Dependent Credit Worth?

For 2021, you can deduct a maximum of $8,000 of expenses for one child or dependent or $16,000 for two or more children. The Employer Identification Number (EIN) for the care provider must be reported when claiming this credit although you might still be eligible for the credit even if you can’t get this information; you must be able to prove to the IRS that you attempted to find and provide this information.

Taxpayers may qualify for the tax credit up to 50% of qualified expenses if their adjusted gross income (AGI) is less than $125,000. However, above $125,000, the credit decreases as your AGI increases. The credit is completely eliminated for any taxpayer with an AGI above $483,000.

Is The Child and Dependent Care Credit refundable?

Yes. The credit is fully refundable for 2021, which means it can create a refund if you don’t owe any taxes.

Tax credits like the child and dependent care credit can be more beneficial to people because they lower the amount of taxes you have to pay each year. This is different from a tax deduction, which can reduce how much of your income you are taxed on. This may lower your tax rate, which could result in you paying fewer taxes but a tax credit is a dollar-for-dollar reduction of the taxes you have to pay.

What Forms Do You Need to File To Claim The Child And Dependent Care Credit?

You should complete and submit Form 2441, the Child and Dependent Care Expenses with your Form 1040 individual income tax return to claim this credit.

What Happens If You Missed Claiming the Credit in 2019 or 2020?

People who missed claiming the credit in a prior year are able to submit an amended tax return for that year in order to claim the credit, Curtis says.

What Common Mistakes Do People Make When Claiming The Child And Dependent Care Credit?

One thing that’s easy to overlook is getting a tax identification number of the organization or person who provided the care. This can be either the employer identification number (EIN) or Social Security number (SSN) of the organization or person providing the care. You need to enter this on your tax return in order to receive the benefit.

People who receive dependent care benefits, such as making contributions to a dependent care plan through their employer on a pre-tax basis will need to complete part III of Form 2441, although this could result in receiving less or no credit, Curry-Edwards said.

A common misconception taxpayers have is that a noncustodial parent may claim dependent care expenses on Form 2441, says Caruso. Generally, the IRS determines a custodial parent as someone with whom the child spends the most nights throughout the year, whereas the other parent would be considered a noncustodial parent—and they aren’t able to claim this credit.

The Child And Dependent Care Credit is complicated, and it can confuse a lot of taxpayers. “These credits can become complicated and taxpayers should seek the guidance of tax professionals in order to avoid errors and potential assessments of penalties,” Caruso advises.

And the consequences can be steep: A taxpayer who is found to have filed an erroneous claim for these credits won’t be allowed to claim them for two years. “If the error is determined to be fraud, the taxpayer will not be allowed to claim any of these credits for 10 years,” Caruso says.

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