$8,000 child and dependent care credit goes unclaimed by millions of American families

There’s up to $8,000 available to taxpayers with children under a similar program to the CTC, according to the IRS, and some people may not even be aware that they qualify. This credit is called the Child and Dependent Care Credit (CDCC), and it’s been around since the 1970s. Tax filers who submit their returns early and who qualify for the CDCC could see their refunds processed within the month of February.

The CTC is not the only tax credit available to filers with dependents

Most parents in the United States are aware of the Child Tax Credit, and during the COVID-19 pandemic in 2021, more than 60 million children benefited from the enhanced CTC payments. But there’s another credit that parents can claim, although the criteria are not as broad and not all minors qualify. It’s worthwhile for parents and people caring for dependents who are unable to care for themselves for reasons such as disability to investigate whether they may claim the credit in their tax return for 2024.

The CDCC was introduced five decades ago and was designed to assist working parents with the cost of daycare, after-school programs, and summer camps. However, the amount offered under the credit failed to keep up with inflation and in 2018, it was noted that it only covered around 10% of the average cost of caring for two children.

The Child and Dependent Care Credit (CDCC) is significantly more generous than the CTC (another important source of funds for Americans) and parents or guardians could benefit from an extra $8,000 in tax season.

How has the CDCC evolved to provide real financial support?

In 2021, the CDCC was boosted under the American Rescue Plan with funding supported by the Pandemic Aid Bill. Not only was the claimable amount increased but the entire amount became refundable whereas only a portion of it had been in the past. This means that any tax filer who was in credit with the IRS after settling any tax liability was paid out in cash.

The funds were intended to cover childcare expenses and millions of households, including parents, caregivers, and children, benefited from the Internal Revenue Service’s assistance.

How did the American Rescue Plan affect the CDCC?

The American Rescue Plan involved several tax benefits for families. They included the expansion of the Child and Dependent Care Credit to help parents return to work after lockdown, according to the Biden administration of the time. The increased amount is still available and parents can apply for a credit from the IRS up to $8,000, which is close to four times the previous cap of $2,100.

By comparison, the expanded Child Tax Credit allows $3,600 for each child under six and $3,000 for children between six to 17 years.

Robbin Caruso, co-lead of Prager Metis’ National Tax Controversy Practice, urged parents, guardians, and caregivers to take advantage of the credit on offer from the IRS:

“They are recognizing the increasing cost of child care in our country. It’s a huge opportunity for taxpayers, and it shouldn’t be missed out on.”

Who is eligible for the Child and Dependent Care Credit?

The IRS makes the CDCC available to parents of younger children and people who are responsible for dependents and who had to pay for care from a qualifying individual so they could work or look for work. A qualifying individual must be:

• A child under the age of 13 years who is a provable dependent of the claimant.
• A dependent or spouse of any age who can’t care for themselves for a reason such as disability and who lives with the claimant for more than half of the year.

It’s important to remain well-informed about benefits, tax credits, and changes to policies, such as US President Donald Trump’s plan for the Child Tax Credit.