2020 was one of the strangest years in modern times. The pandemic caused millions of people all across the world to take a step back, minimize their lives, and spend an immense amount of time cooped up inside their homes. The year came with a unique set of challenges that spanned everything from financial difficulties, to career changes, to isolation from your extended family. When the world ground to a halt, all of us had to make changes not only to keep ourselves healthy, but to keep our families safe as well. This upheaval has made the last year one of the most active years in recent history for the IRS. For parents with children usually in daycare or people with other dependents, many funds that were set aside for childcare and dependent care were left unspent when those facilities closed. The good news is that those funds can still be applied and used now if you know how to take advantage of them. If you would like to learn more about the taxation around dependent care or are looking to resolve any other tax problems, contact Inside Out Tax Resolution Services today.
The American Rescue Plan
In 2020, the American Rescue Plan was put into place to help American families and restore the economy amidst one of the largest health and financial crises of modern history. Most people associate this act with the relief payments that were sent to people all across the country, but the act does much more than just that. The act also extended unemployment insurance, increased the child tax credit, helped support small businesses, and granted a one-year increase in the exclusion for employer-provided dependent care benefits from $5,000 to $10,500 for the 2021 taxable year. This extension was put in place due to the fact that many people were not able to use the money they had set aside in their dependent care assistance programs while working from home during 2020 and 2021.
Making The Most Of Dependent Care Assistance Programs
Dependent care assistance programs are a great way to help support childcare costs, as they allow employees to set aside money before taxes to go directly towards childcare. Although many of these plans do not allow for rollover from year to year, recent legislation has made it possible for these funds to be temporarily transferred over. This legislation is a direct effort to help Americans get back out into their workspaces and fully recover any funds that would have been lost due to the pandemic. The IRS filed two notices, Notice 2021-26 and Notice 2021-15 that fully outlined the legal changes to the tax code. Make sure that you inform your employer of any funds that you need to have rolled over that you specified for your dependent care assistance program, as you are most likely entitled to those rolled over funds.
If you would like more information on COVID relief or need help with a tax issue, then contact our resident tax expert here at Inside Out Tax Resolution Services today.