Revamped 2021 dependent care tax breaks: 6 fast facts for tax preparers

Form 2441 requires that expenses be associated with an EIN in the case of expenses paid to a company (i.e. daycare center) or an SSN in the case of wages paid to an individual caregiver. If wages were paid to an individual caregiver, the family will need to report those wages to their state and the IRS and pay the corresponding employer taxes (i.e. federal and state unemployment, Social Security, Medicare). Note: Every year, many families find themselves needing to play catch-up on state household employer tax filings. We anticipate this will be especially true this year because of the increased savings. 

As you can see, this year, more than any other year, most of your clients will be able to realize meaningful savings on the high cost of dependent care. And for those who hired an individual caregiver, the good news is it’s very likely that their incremental costs to get compliant will be far exceeded by these new savings from the dependent care tax breaks. Unfortunately, many families are unaware of these changes or how to make tax-savvy elections with their dependent care expenses, which makes this a prime opportunity to impress your clients.