The Child Care Spending Credit—Did Tax Reform Affect It?

The American Rescue Plan Act of 2021 temporarily changed the child tax credit (CTC) to make it more accessible for lower-income families and increased the refund. The bill repealed the current credit under Code Sec. 21 and replaced it with a revamped credit under new Code Sec. 36C. The new provision would allow taxpayers to claim a credit of up to $2,500 for families with one “qualifying individual” and $4,000 for families with two or more.

The American Rescue Plan increased the child tax credit (CTC) for 2021, allowing tax filers to claim a CTC of up to $3,600 per child under age 6 and up to $3,000 per child ages 6 to 17. There was no cap on the total credit amount that a filer with multiple children could claim. The bill made three major changes to the CDCTC:

1. Refundable: The credit was made refundable for 2021, meaning the amount can be claimed if taxpayers paid someone to take care of their children or another member of household while they work.

2. Modified the Child and Dependent Care Expenses Credit by reducing the existing four AGI categories and credit percentages to the two AGI categories shown below.

3. The CDCTC has not been amended in two decades and is not indexed for inflation, so even as child care expenses have risen sharply, the credit remains unallocated.

4. Congress temporarily increased the child care tax credit through the American Rescue Plan Act in 2021, making it the first time the credit had a refund. This publication explains the tests you must meet to claim the credit for child and dependent care expenses and how to figure and claim the credit.

Was there a change to the child tax credit?

The Child Tax Credit, Earned Income Tax Credit, and Child and Dependent Care Credit have returned to pre-COVID levels, resulting in a smaller refund for taxpayers in 2022. The Child Tax Credit is worth $2, 000 for each qualifying child, and taxpayers should familiarize themselves with these changes to ensure accurate filing by the April 18, 2023, deadline. No new stimulus payments were available for 2022, so no additional payments are expected.

The Earned Income Tax Credit offers $560 for eligible taxpayers with no children, and the Child and Dependent Care Credit allows taxpayers to receive up to 35 of their employment-related expenses for 2022.

What is the child and dependent care credit for 2024?

In 2024, the child tax credit will be valued at $2, 000 for each qualifying dependent child if the taxpayer’s modified adjusted gross income (MAGI) is $400, 000 or below (married filing jointly) or $200, 000 or below (all other filers). In the event that the taxpayer’s adjusted gross income exceeds the specified limits, the credit will be reduced by an amount equal to $50 for every $1, 000 in excess of the threshold until it is completely phased out.

What is the new $3600 child tax credit?

The Child Tax Credit has undergone changes in 2021, with the maximum limit increased to $3, 600 per child for children under 6 and $3, 000 per child for children aged 6-17. This change is based on the American Rescue Plan, which previously had a credit worth up to $2, 000 per eligible child. The new limits have lower income limits than the original Child Tax Credit, but families still qualify for the $2, 000 per child credit using the original income and phase-out amounts. The entire credit is fully refundable for 2021, allowing eligible families to receive it as a refund if they don’t owe any federal income tax.

Why am I not getting the full child tax credit?

The 2023 Child Tax Credit is available to qualifying families with an annual income of no more than $200, 000, with parents and guardians potentially eligible for partial credit. To claim the credit, individuals must enter their children and dependents on Form 1040 and attach a completed Schedule 8812, Credits for Qualifying Children and Other Dependents. The Interactive Tax Assistant can help determine eligibility.

Which states are getting CTC 2024?

California, Colorado, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New Mexico, New York, Oregon, Vermont, Idaho, Oklahoma, and Utah offer fully refundable Child Tax Credits (CTCs). Minnesota, Oregon, and Utah launched new CTCs, while seven expanded existing ones. Arizona introduced a one-time nonrefundable child tax rebate. Colorado, Minnesota, New Jersey, Oregon, and Vermont offer refundable credits of $1, 000 or more per qualifying child, representing a multibillion-dollar investment in children’s well-being.

Can you claim both child tax credit and dependent care credit?

If you qualify for the child tax credit (CTC), additional child tax credit (ACTC), credit for other dependents (ODC), and child and dependent care credit, you can claim them on your U. S. Individual Income Tax Return, Form 1040-SR, or Form 1040-NR. To claim these credits, you must complete Schedule 8812 (Form 1040), Credits for Qualifying Children and Other Dependents, and attach Form 2441, Child and Dependent Care Expenses. The instructions for each form explain the qualifications, requirements, and calculation methods. The appropriate form or schedule should be attached to your Form 1040, Form 1040-SR, or Form 1040-NR.

Did the Senate pass the CTC bill?

The Road Repair and Accountability Act of 2017, signed by the Legislature and Governor, aims to address the state’s transportation crisis by increasing funding and implementing necessary reforms. This is the first significant increase in state transportation funding in over two decades. The Act outlines measures to hold transportation agencies accountable for the expenditure of SB 1 funds and streamline the delivery of various transportation projects.

Why don’t I qualify for dependent care credit?

To claim credit for Child and Dependent Care Expenses, the expenses must have been paid for care provided for work or work search. If both spouses do not show “earned income”, the credit cannot be claimed. To ensure accurate entries, enter the expenses in both the Provider and Qualifying Dependent screens of the Credit section of the program. Select “My Forms” in the Federal Section, then “Child and Dependent Care Credit” in the Qualifying Person(s) section. Align the total expenses entered in the Provider section to each dependent and save your information.

Did the CTC pass the senate?

The Road Repair and Accountability Act of 2017, signed by the Legislature and Governor, aims to address the state’s transportation crisis by increasing funding and implementing necessary reforms. This is the first significant increase in state transportation funding in over two decades. The Act outlines measures to hold transportation agencies accountable for the expenditure of SB 1 funds and streamline the delivery of various transportation projects.

What is the child tax credit bill update for 2024?

The child tax credit’s refundable portion has been modified to require the credit amount to be multiplied by the number of qualifying children in calendar years 2023-2025. The maximum refundable amount per child has been increased to $1, 800 in 2023, $1, 900 in 2024, and $2, 000 in 2025, with an inflation adjustment starting after 2023. Additionally, taxpayers can elect to use prior year earned income in calculating their earned income tax credit and delay deducting domestic research or experimental research costs until 2026.

Did dependent care credit change?

The child and dependent care credit is a tax credit that helps pay for the care of eligible children and other dependents. It is calculated based on income and a percentage of expenses incurred for the care of qualifying persons. The American Rescue Plan Act of 2021 made the credit substantially more generous, up to $4, 000 for one qualifying person and $8, 000 for two or more qualifying persons. This means more taxpayers will be eligible for the credit for the first time and the amount will be larger than in prior years.

However, taxpayers with an adjusted gross income over $438, 000 are not eligible for this credit. Further information can be found in IRS Publication 503, Child and Dependent Care Expenses. For changes to the credit for 2021 only, see Q6 through Q14.