The American Rescue Plan Act (ARPA) expanded the Child Tax Credit (CTC) program in 2021 in response to pandemic-related dependent care challenges. This expansion had a chance to be made permanent. However, as 2021 ended, the legislation containing this provision did not pass. Since the advance payments have ended, qualified parents/guardians will receive any refundable balance they are due as part of their 2021 tax return. Dependent Care Assistance Program (DCAP) account holders will see changes for 2022 as well.
Prior to 2021, the Child Tax Credit (CTC) was applied to annual tax returns. However, with the passage of ARPA, half of the anticipated credit for 2021 was provided in the form of advance monthly payments. Additional ARPA adjustments to the CTC program included:
- CTC increase from $2,000 to $3,000 for children from 6 to 16 years old
- CTC increase from $3,000 to $3,600 for children under 6 years old
- Temporary $3,000 CTC for 17-year-olds
- Monthly payments sent automatically to eligible parents, with no additional action required
With the expansion now ended, the CTC program will revert back to its original design. For 2022 tax purposes (tax returns filed in 2023), credits will return to $2,000 per child, and 17-year-olds are again excluded.
The Dependent Care Assistance Program (DCAP) provides financial relief for workers who need outside care for their dependents.
During the pandemic, the Consolidated Appropriations Act (CAA) and ARPA expanded the DCAP program. With some limits and exclusions, the annual contribution limit was increased for 2021 to $10,500 for a head of household or married filing jointly, or $5,250 for married filing separately. In addition, a 12-month grace period or carryover was activated to help employees avoid losing DCAP funds that they could not use during lockdowns. Also, employees not able to use all of their DCAP funds by the end of 2021 can still use the extended carryover or grace period into 2022.
Employees who are new to the DCAP benefit account in 2022 need to recognize that the annual limit has reverted back to its prior level. Contributions are now capped at $5,000 annually for head of household or married filing jointly, and $2,500 for married filing separately. Plus, employers need to become versed in changes to the IRS reporting requirements resulting from the DCAP program extensions.
Frequent or complex changes to benefit rules and regulations require timely notice and accurate administration. That’s where DataPath Administrative Services comes in. Talk to us about how we can help you maintain compliance for your benefits programs.
DataPath Administrative Services has been providing experienced, professional third-party benefits administration for companies, organizations, non-profits and governmental entities since 1996.