Federal Child and Dependent Care Tax Credit

This only tangentially related to cafeteria plans, but I don't know what other forum to use. We have a retirement plan customer who has asked us what the 2024 Federal Child and Dependent Care Tax Credit is, so she can determine whether to use this, or use the Dependent Care Assistance Account in her 125 plan. (Don't ask me why she doesn't get this info from her 125 plan administrator, except that perhaps she "handles" 125 admin on her own...).

Anyway, trying to assist her, within limits. But the information I'm finding is WILDLY variable, and the IRS forms 2441, and Pub. 503 are from 2022!

Some of the information I'm finding says that the Federal Child and Dependent Care tax credit has been greatly enhanced, and that it is available to be applied against qualifying expenses of up to $8,000 for one qualifying dependent, and up to $16,000 for two or more. And, the tax credit can be up to 50%, sliding down to 20% based on income, rather than the previous maximum of 35% sliding down to 20%.

Does anyone know of an accurate source to determine the correct answer? Or does anyone know the answer already?

Thanks!

Is the question about what law applies or is relevant?

Or is the question about an amount?

Do the recently published inflation adjustments give any information that’s useful?

Revenue Procedure 2023-34, 2023-48 Internal Revenue Bulletin 1287 (Nov. 27, 2023), available at https://www.irs.gov/pub/irs-irbs/irb23-48.pdf and https://www.irs.gov/irb/2023-48_IRB#REV-PROC-2023-34.

Looks like the credit was expanded by ARPA for 2021, but that expansion has expired.  See https://www.irs.gov/publications/p503 (along with 2021 instructions  and 2022 Instructions for Form 503)

Draft of the 2023 Pub. 503 was recently issued; it also confirms the expansion has expired. 

Thank you both!  Very helpful!!

On a related note, the dependent care FSA limit (sadly!) has also returned to normal levels.  So the ARPA changes expired on both the tax credit and §129 side.  In any case, I think it would be a very rare situation where the tax credit provides more bang for the buck than the dependent care FSA.

• Full details: https://www.newfront.com/blog/dependent-care-fsa-limit-challenges

Slide summary:

Newfront Office Hours Webinar: 2022 Year in Review