There are no official talks yet on another round of stimulus checks, and so it is very unlikely that Congress would send more stimulus payments. However, one lesser known or secret coronavirus stimulus check is still available, but not many know about it, and it is the Child and Dependent Care Credit.
Q2 2021 hedge fund letters, conferences and more
The Child and Dependent Care Credit is a tax credit for working people. It helps taxpayers offset the costs of care for a child or qualifying dependent.
“The child and dependent care tax credit is a credit allowed for a percentage of work-related expenses that a taxpayer incurs for the care of qualifying persons to enable the taxpayer to work or look for work,” the IRS says about this credit.
Similar to the child tax credit (CTC), this credit has also been expanded by the American Rescue Plan Act, which was approved in March this year. Under this credit, a taxpayer can claim up to $4,000 for one qualifying person and $8,000 for two or more qualifying persons.
Moreover, the American Rescue Plan also made the Child and Dependent Care Credit potentially refundable. This means you may not have to owe taxes to claim this credit, and the credit amount would be larger than previous years. Such an arrangement also means that more taxpayers would become eligible for the credit for the first time.
Eligible taxpayers can claim this credit by filing Form 2441. There are, however, a few points that you must keep in mind in order to claim this credit. You (and spouse, if applicable) must have “earned income” from a job. Also, you must file a joint tax return if you are married.
Changes To Child And Dependent Care Credit
Those with an adjusted gross income of less than $125,000 will be able to claim this credit. This credit would cover about 50% of the qualifying expenses, but about 20% for those with income between $125,001 and $183,001, according to Kiplinger.
In 2020, the credit amount was a certain percentage (depending on the AGI) of the work-related expenses you spent to take care of the child or qualifying dependent. Initially, the percentage was 35%, but it was later reduced by one percentage point for every $2,000 of your AGI (adjusted gross income) that is more than $15,000.
Moreover, the expenses that qualify for the credit were also limited. As per Kiplinger, the maximum credit for one qualifying child/disabled person was $1,050, while for more than one, it was $2,100. Also, the Child and Dependent Care Credit were non-refundable in 2020.
The changes made by the American Rescue Plan Act are only temporary, and for now, apply only to 2021. Efforts, however, are underway to make changes to the child and dependent care tax credit permanent.
