The IRS Just Sent Out This Urgent New Warning to Taxpayers

The IRS is warning taxpayers not to forget to claim the Child and Dependent Care Credit.

On March 8, the IRS sent out a new alert, warning taxpayers not to forget one dependent-based credit this year. According to the tax agency, the Child and Dependent Care Credit is available to help pay the expenses of working filers or those looking for work who have to hire care for their dependents.

"There are many important tax credits available for families, and we don't want anyone to overlook the Child and Dependent Care Credit," IRS Commissioner Chuck Rettig said in a statement. "We encourage families and others who may qualify for this credit to carefully review the criteria to make sure they receive the maximum amount they're entitled to. We also encourage the tax professional communities and others to share this important information."

This credit was recently expanded.

The IRS is taking extra care to remind taxpayers to claim the Child and Dependent Care Credit on their 2021 returns because the credit has been expanded for this tax year through the American Rescue Plan Act of 2o21. "This means that more taxpayers will qualify this year than ever before, and the credit will be worth more," the tax agency explained.

According to the IRS, the credit was made fully refundable for the first time in 2021, which means that any eligible family can get it even if they don't owe any federal income tax. "Even if your credit exceeds the amount of Federal income tax that you owe, you can still claim the full amount of your credit, and the amount of the credit in excess of your tax liability can be refunded to you," the tax agency added.

The amount has also increased from years past. "Depending on their income, taxpayers can get a credit worth 50 percent of their qualifying childcare expenses. For tax year 2021, the maximum eligible expense for this credit is $8,000 for one qualifying person and $16,000 for two or more," the IRS said.

But you also might no longer be eligible even if you were in the past.

Unfortunately, new requirements this year mean that some people might not be able to claim the Child and Dependent Care Credit any longer. In 2022, the 50 percent allowance decreases when a filer's adjusted gross income is more than $125,000 before it phases out completely. "Taxpayers with an adjusted gross income over $438,000 are not eligible for this credit even though they may have previously been able to claim this credit," the IRS warns.

Taxpayers must also have a qualifying person to receive it. For the purposes of the Child and Dependent Care Credit, the IRS defines a qualifying person as a "taxpayer's dependent who is 12 or younger when the care is provided; a taxpayer's spouse who is physically or mentally unable to care for themselves and lived with the taxpayer for more than half the year; or someone who is physically or mentally unable to take care of themselves and lived with the taxpayer for six months."

You must also be living in the U.S. to claim this credit.

There is one other requirement for claiming this credit. According to the IRS, you—or your spouse, if you are filing jointly—must have lived in the U.S. for more than half of 2021 to claim the Child and Dependent Care Credit. The tax agency considers this to be the 50 states or Washington, D.C., for the purposes of the qualifying requirements.

"Your main home can be any location where you regularly live," the IRS explains. "Your main home may be your house, apartment, mobile home, shelter, temporary lodging, or other location and doesn’t need to be the same physical location throughout the tax year. If you're temporarily away from your main home because of illness, education, business, or vacation, you're generally treated as living in your main home during that time."

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