The IRS has issued frequently asked questions on the enhanced child and dependent care tax credit and paid sick and family leave credit, providing answers on eligibility, computing the credit amounts, and how to claim them.
The two FAQs are intended to assist employers and families wanting to claim the credits expanded under the American Rescue Plan Act of 2021 (ARPA, P.L. 117-2).
The FAQ for the paid sick and family leave credit provides answers to 123 questions, including provisions related to self-employed individuals, special issues for employees, use of third-party payers, interaction of the ARPA tax credit with other tax credits, taxation and deductibility of the credit, periods the credit is available, substantiating eligibility, allocable collectively bargained contributions, and allocable qualified health plan expenses.
In the FAQ on the child and dependent care tax credit, the IRS answers 21 questions focusing on qualifications for work-related expenses and eligibility for claiming the credit.
The paid sick and family leave credit for employers and self-employed individuals covers the cost of the paid leave wages of time off provided for reasons related to COVID-19 from April 1 through September 30, including time taken for employees to receive and recover from COVID-19 vaccinations. The credit is an extension of one originally established under the Families First Coronavirus Response Act (P.L. 116-127).
The child and dependent care tax credit covers a percentage of the costs incurred by taxpayers for the care of a qualifying person that allows the taxpayer to work or look for work. ARPA expanded the 2021 eligibility for the credit by increasing the amount of expenses taken into consideration and increasing the percentage of allowed expenses. The credit is also refundable for most taxpayers.