Children can be expensive. Childcare, clothes, food, school supplies, medical bills, and a
dozen other things add up quickly when caring for children. If you have more than one
child, it seems to be infinite sometimes. However, there are many tax breaks for
parents obtaining the childcare credit. You shouldn’t have to go broke taking care of the
children you love so much. This is why tax breaks for parents obtaining the childcare
credit are vital.
Childcare Credit
The childcare credit is for dependent care for children under 13 years of age or with a
disability. This credit is to help recoup at least some of what you pay each year in
childcare. You can take up to 35% most years. However, for the 2021 tax year, the
credit is increased to 50% of up to 8000 for one child and 16000 for two children. This
increase is up from 3000 for one and 6000 for two. This means parents can take up to
4000 for one child and 8000 for two, whereas they were limited to 1050 for one and
2100 for two previously.
Does Everyone Get the Credit?
Most parents will qualify for the full credit. However, for parents earning between
$125,000 and $400,000, the credit will reduce from 50% to 20% gradually. You will
continue to lose more of the credit above the $400,000 mark by 1% for every $2000.
However, the expenses covered are for before and after school care, preschool,
nursery, summer camps, transportation costs, or care outside the home for children.
Other Credits
The childcare credit is fantastic, but don’t forget that you can take other credits as
parents. Here are a few of those tax breaks for parents obtaining the childcare credit.
Child Tax Credit
If you are one of those lucky families who doesn’t pay for childcare, you could still take
the child tax credit. This credit is extended to any child’s parent. It’s equivalent to up to
$3600 for children under six and $3000 for children up to 17. Parents can make up to
$75,000 for single filers or $150,000 for couples. This credit can be sent in monthly
payments if parents choose, but they have to opt in using the IRS portal in July. This
credit might help relieve some of the cost of childcare if you take the monthly payment.
This tax credit for parents taking the child tax credit is crucial for many families,
especially now.
Education Plans
When you pay for a child’s college or secondary education, the money can be claimed
on taxes. If your child is not in college, but you contribute to a 529 plan to save college
funds, some of that may help reduce your tax obligations.
Earned Income Tax Credit
One of the tax breaks for parents taking the childcare credit is for lower-income
families—the EITC, which can help reduce tax obligations. It is based on a percentage
of income and is phased out the more money a filer or couple makes. Children are not
required to take this credit.
Final Thoughts
Talk to your employer too. Some employer benefits include saving for dependent care.
You can have the cost of childcare deducted each pay period and use those funds for
childcare-related expenses. As a parent, it’s essential to minimize the cost of care in any
way possible. Tax breaks for parents obtaining the childcare credit can be beneficial to
the family in more ways than you may realize now.
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