The IRS posted two sets of FAQs to its website on Friday, explaining changes to various credits made by the American Rescue Plan Act (ARPA), P.L. 117-2.
New Child and Dependent Care Tax Credit FAQs discuss changes made by ARPA that increased the maximum amount of work-related expenses for qualifying care that may be taken into account in calculating the Sec. 21 child and dependent care credit, increased the maximum percentage of those expenses for which the credit may be taken, modified how the credit is reduced for higher earners, and made it refundable for 2021. To claim the credit for 2021, taxpayers will need to complete Form 2441, Child and Dependent Care Expenses, and include the form when filing their tax returns in 2022.
The other set of FAQs, titled Tax Credits for Paid Leave Under the American Rescue Plan Act of 2021 for Leave After March 31, 2021, addresses ways that ARPA amended and extended paid sick and family leave tax credits. ARPA also provided that leave wages paid to an employee who is seeking or awaiting the results of a test for, or diagnosis of, COVID-19, or is obtaining immunizations related to COVID-19 or recovering from immunization, are leave wages that can be eligible for the credits. Additionally, under ARPA, eligible employers may now claim the credit for paid family leave wages for all the same reasons that they can claim the credit for paid sick leave wages.
The FAQs include information on how eligible employers may claim the paid sick and family leave credits for leave taken after March 31, 2021, including how to file for and compute the applicable credit amounts and how to receive advance payments for and refunds of the credits.
— Alistair M. Nevius, J.D., (Alistair.Nevius@aicpa-cima.com) is The Tax Adviser’s editor-in-chief.