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Level 1
posted Feb 3, 2022 8:15:15 AM

Dependent Care Credit for 2021 showing a lot more than 2020

Married Filing Jointly, paid a daycare for our two kids.

 

Going through the steps for the Dependent Care Credit. We paid $19,727 in 2021, roughly similar to what we paid in 2020. My wife has the $5000 pre-tax deducted from her paycheck. Now TurboTax is showing only a $200 credit for 2020, but this year it's coming in as $4,950 for 2021. Am I doing something wrong, or did the taxes change drastically between the two years?

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1 Best answer
Expert Alumni
Feb 3, 2022 8:26:54 AM

No, you're probably not doing anything wrong. 

  • For the 2021 tax year only, the Child and Dependent Care Credit expanded in several ways under the American Rescue Plan. The percentage and the child care expense thresholds changed, so you can get a credit up to 50% of $8,000 ($4,000) in child care expenses for one child under 13, an incapacitated spouse or parent, or another dependent so that you can work and up to 50% of $16,000 in expenses ($8,000) for families with two or more dependents. 

 

For additional information, see What is the Expanded Child and Dependent Care Credit?

2 Replies
Expert Alumni
Feb 3, 2022 8:26:54 AM

No, you're probably not doing anything wrong. 

  • For the 2021 tax year only, the Child and Dependent Care Credit expanded in several ways under the American Rescue Plan. The percentage and the child care expense thresholds changed, so you can get a credit up to 50% of $8,000 ($4,000) in child care expenses for one child under 13, an incapacitated spouse or parent, or another dependent so that you can work and up to 50% of $16,000 in expenses ($8,000) for families with two or more dependents. 

 

For additional information, see What is the Expanded Child and Dependent Care Credit?

Level 15
Feb 3, 2022 9:17:16 AM

Congress boosted the credit for 2021.  For one child, the maximum eligible expense is $8000 and $16,000 for two or more children, so after the $5000 FSA is accounted for, there is a further $3000 or $11,000 eligible for the credit.  The credit percentage was also boosted from 20% to as much as 50%, depending on your income.   

 

The credit goes back to normal for 2022, unless Congress changes the law again.