26 USC 21 - Expenses for household and dependent care services necessary for gainful employment

United States Code

USC most recently checked for updates: Dec 03, 2024

Part III - CHANGES IN RATES DURING A TAXABLE YEAR

§ 22. Credit for the elderly and the permanently and totally disabled

U.S. Code
Notes

§ 21.

Expenses for household and dependent care services necessary for gainful employment

(a)

Allowance of credit

(1)

In general

In the case of an individual for which there are 1 or more qualifying individuals (as defined in subsection (b)(1)) with respect to such individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the applicable percentage of the employment-related expenses (as defined in subsection (b)(2)) paid by such individual during the taxable year.

(2)

Applicable percentage defined

For purposes of paragraph (1), the term “applicable percentage” means 35 percent reduced (but not below 20 percent) by 1 percentage point for each $2,000 (or fraction thereof) by which the taxpayer’s adjusted gross income for the taxable year exceeds $15,000.

(b)

Definitions of qualifying individual and employment-related expenses

For purposes of this section—

(1)

Qualifying individual

The term “qualifying individual” means—

(A)

a dependent of the taxpayer (as defined in section 152(a)(1)) who has not attained age 13,

(B)

a dependent of the taxpayer (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B)) who is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more than one-half of such taxable year, or

(C)

the spouse of the taxpayer, if the spouse is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more than one-half of such taxable year.

(2)

Employment-related expenses

(A)

In general

The term “employment-related expenses” means amounts paid for the following expenses, but only if such expenses are incurred to enable the taxpayer to be gainfully employed for any period for which there are 1 or more qualifying individuals with respect to the taxpayer:

(i)

expenses for household services, and

(ii)

expenses for the care of a qualifying individual.

Such term shall not include any amount paid for services outside the taxpayer’s household at a camp where the qualifying individual stays overnight.

(B)

Exception

Employment-related expenses described in subparagraph (A) which are incurred for services outside the taxpayer’s household shall be taken into account only if incurred for the care of—

(i)

a qualifying individual described in paragraph (1)(A), or

(ii)

a qualifying individual (not described in paragraph (1)(A)) who regularly spends at least 8 hours each day in the taxpayer’s household.

(C)

Dependent care centers

Employment-related expenses described in subparagraph (A) which are incurred for services provided outside the taxpayer’s household by a dependent care center (as defined in subparagraph (D)) shall be taken into account only if—

(i)

such center complies with all applicable laws and regulations of a State or unit of local government, and

(ii)

the requirements of subparagraph (B) are met.

(D)

Dependent care center defined

For purposes of this paragraph, the term “dependent care center” means any facility which—

(i)

provides care for more than six individuals (other than individuals who reside at the facility), and

(ii)

receives a fee, payment, or grant for providing services for any of the individuals (regardless of whether such facility is operated for profit).

(c)

Dollar limit on amount creditable

The amount of the employment-related expenses incurred during any taxable year which may be taken into account under subsection (a) shall not exceed—

(1)

$3,000 if there is 1 qualifying individual with respect to the taxpayer for such taxable year, or

(2)

$6,000 if there are 2 or more qualifying individuals with respect to the taxpayer for such taxable year.

The amount determined under paragraph (1) or (2) (whichever is applicable) shall be reduced by the aggregate amount excludable from gross income under section 129 for the taxable year.

(d)

Earned income limitation

(1)

In general

Except as otherwise provided in this subsection, the amount of the employment-related expenses incurred during any taxable year which may be taken into account under subsection (a) shall not exceed—

(A)

in the case of an individual who is not married at the close of such year, such individual’s earned income for such year, or

(B)

in the case of an individual who is married at the close of such year, the lesser of such individual’s earned income or the earned income of his spouse for such year.

(2)

Special rule for spouse who is a student or incapable of caring for himself

In the case of a spouse who is a student or a qualifying individual described in subsection (b)(1)(C), for purposes of paragraph (1), such spouse shall be deemed for each month during which such spouse is a full-time student at an educational institution, or is such a qualifying individual, to be gainfully employed and to have earned income of not less than—

(A)

$250 if subsection (c)(1) applies for the taxable year, or

(B)

$500 if subsection (c)(2) applies for the taxable year.

In the case of any husband and wife, this paragraph shall apply with respect to only one spouse for any one month.

(e)

Special rules

For purposes of this section—

(1)

Place of abode

An individual shall not be treated as having the same principal place of abode of the taxpayer if at any time during the taxable year of the taxpayer the relationship between the individual and the taxpayer is in violation of local law.

(2)

Married couples must file joint return

If the taxpayer is married at the close of the taxable year, the credit shall be allowed under subsection (a) only if the taxpayer and his spouse file a joint return for the taxable year.

(3)

Marital status

An individual legally separated from his spouse under a decree of divorce or of separate maintenance shall not be considered as married.

(4)

Certain married individuals living apart

If—

(A)

an individual who is married and who files a separate return—

(i)

maintains as his home a household which constitutes for more than one-half of the taxable year the principal place of abode of a qualifying individual, and

(ii)

furnishes over half of the cost of maintaining such household during the taxable year, and

(B)

during the last 6 months of such taxable year such individual’s spouse is not a member of such household,

such individual shall not be considered as married.

(5)

Special dependency test in case of divorced parents, etc.

If—

(A)

section 152(e) applies to any child with respect to any calendar year, and

(B)

such child is under the age of 13 or is physically or mentally incapable of caring for himself,

in the case of any taxable year beginning in such calendar year, such child shall be treated as a qualifying individual described in subparagraph (A) or (B) of subsection (b)(1) (whichever is appropriate) with respect to the custodial parent (as defined in section 152(e)(4)(A)), and shall not be treated as a qualifying individual with respect to the noncustodial parent.

(6)

Payments to related individuals

No credit shall be allowed under subsection (a) for any amount paid by the taxpayer to an individual—

(A)

with respect to whom, for the taxable year, a deduction under section 151(c) (relating to deduction for personal exemptions for dependents) is allowable either to the taxpayer or his spouse, or

(B)

who is a child of the taxpayer (within the meaning of section 152(f)(1)) who has not attained the age of 19 at the close of the taxable year.

For purposes of this paragraph, the term “taxable year” means the taxable year of the taxpayer in which the service is performed.

(7)

Student

The term “student” means an individual who during each of 5 calendar months during the taxable year is a full-time student at an educational organization.

(8)

Educational organization

The term “educational organization” means an educational organization described in section 170(b)(1)(A)(ii).

(9)

Identifying information required with respect to service provider

No credit shall be allowed under subsection (a) for any amount paid to any person unless—

(A)

the name, address, and taxpayer identification number of such person are included on the return claiming the credit, or

(B)

if such person is an organization described in section 501(c)(3) and exempt from tax under section 501(a), the name and address of such person are included on the return claiming the credit.

In the case of a failure to provide the information required under the preceding sentence, the preceding sentence shall not apply if it is shown that the taxpayer exercised due diligence in attempting to provide the information so required.

(10)

Identifying information required with respect to qualifying individuals

No credit shall be allowed under this section with respect to any qualifying individual unless the TIN of such individual is included on the return claiming the credit.

(f)

Regulations

The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section.

(g)

Special rules for 2021

In the case of any taxable year beginning after December 31, 2020, and before January 1, 2022—

(1)

Credit made refundable

If the taxpayer (in the case of a joint return, either spouse) has a principal place of abode in the United States (determined as provided in section 32) for more than one-half of the taxable year, the credit allowed under subsection (a) shall be treated as a credit allowed under subpart C (and not allowed under this subpart).

(2)

Increase in dollar limit on amount creditable

Subsection (c) shall be applied—

(A)

by substituting “$8,000” for “$3,000” in paragraph (1) thereof, and

(B)

by substituting “$16,000” for “$6,000” in paragraph (2) thereof.

(3)

Increase in applicable percentage

Subsection (a)(2) shall be applied—

(A)

by substituting “50 percent” for “35 percent”, and

(B)

by substituting “$125,000” for “$15,000”.

(4)

Application of phaseout to high income individuals

(A)

In general

Subsection (a)(2) shall be applied by substituting “the phaseout percentage” for “20 percent”.

(B)

Phaseout percentage

The term “phaseout percentage” means 20 percent reduced (but not below zero) by 1 percentage point for each $2,000 (or fraction thereof) by which the taxpayer’s adjusted gross income for the taxable year exceeds $400,000.

(h)

Application of credit in possessions

(1)

Payment to possessions with mirror code tax systems

The Secretary shall pay to each possession of the United States with a mirror code tax system amounts equal to the loss (if any) to that possession by reason of the application of this section (determined without regard to this subsection) with respect to taxable years beginning in or with 2021. Such amounts shall be determined by the Secretary based on information provided by the government of the respective possession.

(2)

Payments to other possessions

The Secretary shall pay to each possession of the United States which does not have a mirror code tax system amounts estimated by the Secretary as being equal to the aggregate benefits that would have been provided to residents of such possession by reason of this section with respect to taxable years beginning in or with 2021 if a mirror code tax system had been in effect in such possession. The preceding sentence shall not apply unless the respective possession has a plan, which has been approved by the Secretary, under which such possession will promptly distribute such payments to its residents.

(3)

Coordination with credit allowed against United States income taxes

In the case of any taxable year beginning in or with 2021, no credit shall be allowed under this section to any individual—

(A)

to whom a credit is allowable against taxes imposed by a possession with a mirror code tax system by reason of this section, or

(B)

who is eligible for a payment under a plan described in paragraph (2).

(4)

Mirror code tax system

For purposes of this subsection, the term “mirror code tax system” means, with respect to any possession of the United States, the income tax system of such possession if the income tax liability of the residents of such possession under such system is determined by reference to the income tax laws of the United States as if such possession were the United States.

(5)

Treatment of payments

For purposes of section 1324 of title 31, United States Code, the payments under this subsection shall be treated in the same manner as a refund due from a credit provision referred to in subsection (b)(2) of such section.

(Added Pub. L. 94–455, title V, § 504(a)(1), Oct. 4, 1976, 90 Stat. 1563, § 44A; amended Pub. L. 95–600, title I, § 121(a), Nov. 6, 1978, 92 Stat. 2779; Pub. L. 97–34, title I § 124 (a)–(d), Aug. 13, 1981, 95 Stat. 197, 198; Pub. L. 98–21, title I, § 122(c)(1), Apr. 20, 1983, 97 Stat. 87; renumbered § 21 and amended Pub. L. 98–369, div. A, title IV, §§ 423(c)(4), 471(c), 474(c), July 18, 1984, 98 Stat. 801, 826, 830; Pub. L. 99–514, title I, § 104(b)(1), Oct. 22, 1986, 100 Stat. 2104; Pub. L. 100–203, title X, § 10101(a), Dec. 22, 1987, 101 Stat. 1330–384; Pub. L. 100–485, title VII, § 703(a)–(c)(1), Oct. 13, 1988, 102 Stat. 2426, 2427; Pub. L. 104–188, title I, § 1615(b), Aug. 20, 1996, 110 Stat. 1853; Pub. L. 107–16, title II, § 204(a), (b), June 7, 2001, 115 Stat. 49; Pub. L. 107–147, title IV, § 418(b), Mar. 9, 2002, 116 Stat. 57; Pub. L. 108–311, title II, §§ 203, 207(2), (3), Oct. 4, 2004, 118 Stat. 1175, 1177; Pub. L. 109–135, title IV, § 404(b), Dec. 21, 2005, 119 Stat. 2634; Pub. L. 110–172, § 11(a)(1), Dec. 29, 2007, 121 Stat. 2484; Pub. L. 117–2, title IX, § 9631(a), (b), Mar. 11, 2021, 135 Stat. 159.)

cite as: 26 USC 21