What Is The Impact Of The Child Care Tax Credit On My Taxes?

The Child Tax Credit (CTC) is a tax break for working people with qualifying dependents, reducing the amount of tax owed by up to $2,000 per qualifying child. If you end up owing less tax than the CTC amount, you may be able to get a refund using the Additional Child Tax Credit (ACTC). This means that even if your credit exceeds the amount of Federal income tax that you owe, you can still claim the full amount of your credit, and the amount of the credit in excess of your tax liability can be refunded to you. Congress is currently negotiating a $78 billion tax package with retroactive changes, including a boost for the child tax credit.

The proposed Child Tax Credit legislation would make more of the credit refundable and account for inflation. Many families with young children will get a bigger tax credit for last year’s childcare expenses, and more families will qualify for the credit. This credit “gives back” a portion of the money spent on care, and can reduce your tax bill by hundreds or even thousands of dollars.

The Child and Dependent Care Tax Credit allows taxpayers to decrease expenses for child care (children under the age of 13) and adult dependents by claiming the credit on up to $5,000 for dependent care benefits received from your employer. Higher-income families generally benefit more from the exclusion than from the credit because the excluded income is free from both income and payroll taxes.

There are no tax deductions available for child care for individuals, but you might qualify for other credits or deductions. Claiming all three credits, when possible, could mean even more money back from the IRS.