Stimulus Update: Don't Overlook This $8,000 Child Tax Credit Benefit

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When the enhanced Child Tax Credit was allowed to expire at the end of 2021, it had a significant impact on low- to moderate-income households across the nation. Prior to the expiration of the tax credit, millions of families had gotten a significant financial boost of $250 to $300 per month for each qualifying child in their households. This payment landed in bank accounts and mailboxes from June to December 2021 and made it a lot easier for cash-strapped parents to make ends meet.

There was, at one point, the option to extend the temporarily enhanced tax credit for another year. But lawmakers were unable to come to an agreement on the terms of an extension, so the temporary program was allowed to end instead. When this happened, the loss of the monthly Child Tax Credit checks pushed millions of families back into precarious financial situations. While the payments came to an end just a few months ago, recent data shows how badly families are struggling without the tax credit money.

The good news is that there could be a new monthly payment coming for families with children, but the bill is still in its infancy -- and whether or not it will make it through lawmakers' hoops remains to be seen. However, there is still some Child Tax Credit money left to be claimed by families who qualify, and it could amount to a whopping $8,000 this year. Here's what you should know about this tax credit benefit -- and who may qualify.

The $8,000 Child Tax Credit benefit you may not know about

There has been a lot of discussion about the process of claiming the other half of the Child Tax Credit money on your tax return. But what isn't as widely discussed is another benefit parents can take advantage of: an $8,000 maximum credit that can be claimed on your taxes for childcare and similar expenses.

This credit was part of President Joe Biden's American Rescue Plan, which included the monthly Child Tax Credit payments for families. With this tax credit, you can claim up to 50% of your childcare expenses for 2021, up to a maximum of $8,000. Prior to the American Rescue Plan being signed into law, parents were limited to a credit of 35% of these expenses, up to a maximum of $2,100 for childcare expenses for one child, or up to a maximum of $6,000 in childcare expenses for two children.

Per a statement from the IRS, "The child and dependent care tax credit is a credit allowed for a percentage of work-related expenses that a taxpayer incurs for the care of qualifying persons to enable the taxpayer to work or look for work."

This means families with children or dependents in daycare or other types of eligible care can claim a few extra thousand dollars this year on their tax returns. Considering the current costs of childcare in the U.S., this could be a huge benefit for many households -- but before you start banking on this extra cash, it's important to know who may or may not be eligible for the credit.

Who can claim this extra tax credit benefit?

As with the other Child Tax Credit benefits that were enhanced for 2021, there are stipulations regarding who is eligible to claim the credit for child and dependent care expenses. If you want to use this credit to reduce your tax bill, you'll need to make sure you qualify.

Per the IRS guidelines, this credit may be claimed by taxpayers who, in order to work or look for work, paid someone to take care of their qualifying child, children, or dependents in 2021. A qualifying person is:

• A child under age 13
• A spouse who is incapable of self-care
• A dependent who is incapable of self-care

It's important to note that because the child and dependent care credit is a nonrefundable credit, only taxpayers with taxable income are eligible to claim the credit. Parents or guardians who are nonfilers, or not required to file taxes due to a lack of income, are not eligible for this tax credit.

It's also important to note that if you're claiming the credit for a child under the age of 13, they must have been your legal dependent when the care was provided. If you share custody with another person, only the custodial parent is eligible to claim this credit.

If you're hoping to take advantage of the tax credit for an adult dependent or spouse who was physically or mentally incapable of self-care, there are other qualifications you must meet in order to be eligible.

How to claim the tax credit benefit

While you'll have to meet the restrictions for the tax credit, the good news is that claiming the benefit is simple. In order to take advantage of this credit, you simply need to claim it on your taxes. This benefit is considered a nonrefundable credit, and the only way to claim the benefits is to include them on your 2021 tax return when you file.

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