Largest-ever Child Tax Credit in American history. A boom for Working Parents

    Posted by TASC Large Markets on Aug 2, 2021 10:15:48 AM

    The average cost of raising a child to adulthood is more than $230,000—and that’s not counting college.1 One of the biggest line items in that total is often childcare for children of working parents. In 2020, both parents were employed in more than 60% of American families.2 And, according to one study, they were paying an average of between $11,000 and $15,000 per year for the full-time care of infants and toddlers and $4,400 for after-school care.3

    The pandemic only worsened an already challenging situation, by making childcare hard to find and, in some cases, impossible to afford. Many parents, particularly women, were forced to leave their jobs due to their inability to pay for the unplanned expense. The burden of paying for regular and emergency childcare is still very real. According to the U.S. Census Bureau, there were nearly six million cases of childcare disruption in the period between June 9 and June 21 of this year.4

    Working parents needed help even before the pandemic. Now, they need it more than ever.

    Recent legislation promises to provide some of that help. And it gives employers an opportunity to expand their support for employees with children.

    Direct Monthly Payments to Working Parents Began in July

    A provision of the American Rescue Plan Act of 2021 authorized the largest-ever Child Tax Credit in American history. For children under age six, the credit has gone from $2000 per child to $3,600. For children over six, the credit has gone from $2000 to $3000 per child. The Act also raises the age of dependent children who can be claimed for the credit from 16 to 17.

    Best of all, working parents won’t have to wait until they file their 2021 taxes to start seeing the benefit of those increases. Beginning in July 2021, and continuing until the end of the year, the IRS will be sending out monthly advance payments amounting to the first half of the total credit. That means up to $300 per child for each child under age 6, and up to $250 per child for older children. The payments are not taxable, and most qualifying families will receive theirs automatically. Couples who make up to $150,000 will get full credit, as will single-parents who make up to $112,500.

    Informing working parents of these payments and steering them towards sources for more detailed information can be a great way to show awareness of, and concern for, their childcare challenges. You can start by sending them here:

    Also New: Dependent Care FSA Caps Have Doubled

    Dependent Care FSAs allow employees to put pre-tax dollars into an account they can use to cover a wide variety of childcare expenses, including remote child care, day camp, educational services including tutoring, housekeeping, nursery school, preschool, private school tuition, before-and-after-school programs, sick child care, and transportation to and from an eligible care provider by that provider. (You can find more comprehensive list of eligible expenses at: Eligible employees are single parents or couples, where all parents in the household are working, looking for work or attending school full time.

    As with the Child Tax Credit, recent legislation has provided a significant boost to FSAs that can be used for childcare expenses. A provision of American Rescue Plan Act more than doubled the amount of money parents can set aside for eligible expenses to up to $10,500 per couple.

    Here are the other changes:

    • As the result of a previous piece of legislation, the Consolidated Appropriations Act of late 2020, employers have the option to allow employees to change their Dependent Care FSA contribution rate midyear without a qualifying event such as the birth of a child.
    • Employers can also allow parents to enroll in a Dependent Care FSA midyear without a qualifying event.
    • Since many childcare arrangements were disrupted by COVID throughout 2020, employers can allow parents to roll over unused Dependent Care contributions they made that year into 2021, and those they make in 2021 into 2022—rather than surrendering them, as is typically the case with an FSA.
    • The age of eligible dependents has increased from age 13 to 14 for the 2021 calendar year.

    What the Dependent Care FSA Changes Mean For Employers

    These changes are available to you, but not mandatory. As always, you can offer a Dependent Care FSA with or without a company contribution. If you decide to make any changes, you’ll need to amend your Section 125 cafeteria plan.

    Your benefit system needs to be able to process the new options and you need to be certain you don’t have provisions currently in your plan that pose a conflict. Make sure your payroll system can accept and work with a Dependent Care limits higher than the previous limit of $5000 per employee. If you plan to allow employees to select higher limits, make sure your plan is amended by December 31, 2021.

    A Way to Set Your Company Apart

    Family-oriented benefits, including Dependent Care FSAs, Healthcare FSAs, Child Adoption Assistance, and Emergency Expense Reimbursement, have become more important than ever. Current and future employees will be looking for them ahead of many other benefits. That’s why 63% of senior leaders said their organizations are planning to increase their existing child care benefits.5 With the greater allowances and flexibility provided by the new legislation, now could be an ideal time to add or enhance your Dependent Care offering.

    Editor’s Note: TASC offers Dependent Care FSAs, Healthcare FSAs, Child Adoption Assistance, and Emergency Expense Reimbursement, from more than 50 benefit offerings that can be instantly configured to create custom plans that meet employee needs; where they are in life.

    August 11, 2021 IRS Tax Tip


    1. “How Much Does It Cost To Raise a Child?” U.S. News & World Report, September 2020:
    2. “Top 10 Employee Benefits for 2021,” Best Money Moves, July 2020:
    3. “Learn How You Can Save Money On Child Care Costs,” TASC, 2021:
    1. “Household Pulse Survey: United States Census Bureau,” July 2021:
    1. “The Pandemic is Changing Employee Benefits,” Harvard Business Review, April 2021: