Child and Dependent Care Tax Credit (CDCTC)

The Child and Dependent Care Tax Credit is a federal and state tax credit that allows working people to deduct a percentage of their costs for child care or for care provided for an incapacitated dependent from the amount of federal taxes owed. The federal CDCTC is not refundable. The state CDCTC is 25 percent of the federal credit the taxpayer receives. The child and dependent care tax credit is based on the person’s out of pocket expenses, including the co-payments made by a parent participating in the state Child Care Assistance Program (CCAP).

Who Qualifies?

For tax year 2021:

  • Taxpayer has incurred expenses for care of a qualified individual so that the person (and spouse if filing jointly) can work or look for work.
  • A qualified person is a dependent under age 13 that lives with the taxpayer for the year or a spouse or other dependent who is incapable of caring for him/herself.
  • Any kind of child or dependent care can qualify, including care at a center, a family day care home or a church, or care provided by a neighbor or a relative (except if provided by a spouse, a dependent, or a child of the tax filer under 19).
  • The taxpayer has earned income. If jointly filing with a spouse, both must have earned income, unless one is a student or incapable of selfcare

The amount of the Child and Dependent Care Tax Credit depends on the number of children or dependents in care, a family’s income, and the amount the family paid for care during the year.

For tax year 2021, the ARPA temporarily increased the maximum amount of work-related expenses for qualifying care that may be taken into account in calculating the child and dependent care credit, increased the maximum percentage of those expenses for which the credit may be taken, modified how the credit is reduced for higher earners, and made it refundable.

Credit amounts

For 2021, eligible taxpayers can claim qualifying work-related expenses up to:

  • $8,000 for one qualifying person, up from $3,000 in prior years, or
  • $16,000 for two or more qualifying persons, up from $6,000 in prior years.

Combined with the increase to 50 percent in the maximum credit rate, taxpayers with the maximum amount of qualifying work-related expenses would receive a maximum credit of $4,000 for one qualifying person, or $8,000 for two or more qualifying person

The state CDCTC can be as much as $525 for lower income families and $300 for families with higher income. Families cannot claim all of their child care expenses: the maximum is $3,000 for one child/dependent and up to $6,000 for two or more children/dependents.

A family can apply for the Child Tax Credit in addition to the EITC and the Child Tax Credit. The EITC and CDCTC do not affect a family’s eligibility for this credit.

How to Apply

To claim the federal credit, you can file Form 1040 and complete Form 2441 and attach it to your 1040 tax form. To claim the state credit you can file the RI-2441 form.

For free tax help contact a Volunteer Income Tax Assistance location near you. For free legal assistance on federal tax matters contact the RILS’s Low Income Taxpayers Clinic.

People may want to try to use the IRS Free File options available on the IRS website.

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