how dependent care benefits work
dependents according to the internal revenue service irs are treated as an exemption credit that may be claimed on an annual tax return on its own the dependent credit can reduce a filer s taxable income by thousands of dollars children are the most commonly claimed dependent though dependent care benefits may be extended to cover a variety of people provided they meet several stipulations for example dependents may also be relatives roommates or even romantic partners the irs provides a guide on who may be claimed as a dependent dependent care benefits are available to individuals whose children are cared for by a daycare facility or provider such benefits may take the form of childcare tax credits or a dependent care flexible spending account fsa each provides tax savings based on money spent on childcare dependent care benefits are part of an overall employee benefits system administered by the irs 1dependent care benefits flexible spending accounta dependent care flexible spending account is available for individuals who care for a child or adult who is incapable of self care who lives in the taxpayer s home for at least eight hours each day and who can be claimed as a dependent on an income tax return these accounts allow individuals to pay for qualified child and dependent care expenses while lowering their taxable income this type of fsa is set up by an employer participants authorize their employer to withhold a specified amount from their paycheck each pay period and deposit the money in an account instead of using the fsa money to pay for expenses directly those costs are paid out of pocket and reimbursement must be applied for 2dependent care benefits child and dependent care creditthe child and dependent care credit is a tax credit available to taxpayers who paid for the care of their child spouse or dependent so they can work or look for work the irs maintains a comprehensive information page related to the child and dependent care credit which includes eligibility and timing requirements how much can be claimed and information on which forms to complete this tax credit not a deduction reduces the tax burden dollar for dollar 1the american rescue plan signed by president biden on march 11 2021 includes generous tax breaks to low and moderate income people originally capped at 35 of eligible expenses up to 2 100 the child and dependent care credit is now capped at 50 of eligible expenses up to 4 000 for one qualifying individual and 8 000 for two or more for 2021 in addition the credit is entirely refundable for 2021 3dependent care benefits paid leavemore and more employers are making paid family leave available to their workers nine states california colorado connecticut massachusetts new jersey new york oregon rhode island and washington and the district of columbia offer paid family and medical leave pfml hawaii provides paid medical leave in the form of temporary disability insurance 4 most workers are eligible for the family and medical leave act fmla which offers up to 12 weeks of unpaid leave per year to care for family members 