2021 Child and Dependent Care Credit
Another temporary provision in the Act, applicable only to the 2021 taxable year, increases the credit for dependent care assistance employment expenses, in the case where the taxpayer has one dependent, from $3,000 to $8,000, and, in the case where the taxpayer has two or more dependents, from $6,000 to $16,000. The Act increases the percentage of these expenses that may be claimed as a credit from 35% to 50% and begins to phase out when the taxpayer’s adjusted gross income (AGI) exceeds $125,000. For households with income over $400,000, the credit can be reduced below 20%. Also, for the 2021 taxable year, the credit is refundable.
For a taxpayer who receive reimbursements from his or her employer, there is an exclusion from his or her gross income of amounts paid by an employer for dependent care assistance; the Act increases this exclusion amount from $5,000 to $10,500 (or from $2,500 to $5,250 for a separate return filed by a married individual). This change only applies to the 2021 taxable year.