Prior to the changes that the American Rescue Plan will make for 2021, the ‘regular’ Child and Dependent Care Tax Credit has been calculated using a maximum of $3,000 of expenses when the taxpayer has one qualifying child and $6,000 of expenses when the taxpayer has two or more qualifying children. Qualifying children are those children who are under the age of 13 for the entire year.
The Child and Dependent Care Tax Credit may also be claimed by taxpayers who have a spouse, or other dependents, who are physically or mentally incapable of caring for themselves, provided those individuals live with the taxpayer for more than half of the year.
Under the American Rescue Plan, the maximum amount of expenses eligible to be used in the calculation of the Child and Dependent Care Tax Credit is more than doubled in 2021, to $8,000 of expenses when a taxpayer has one qualifying child and $16,000 of expenses when a taxpayer has two or more qualifying children!