If you know how to use the child and dependent care expenses credit and the child tax credit, you are more likely to get the maximum refund when you efile your taxes. First, however, you have to understand how the two credits work in your income tax return – and how they work together, so you don’t spend valuable time worrying over how TaxSlayer estimates your refund.
Many taxpayers who are eligible to claim the child and dependent care expenses credit are confused when they get the TaxSlayer program to estimate their tax refund and it doesn’t change. This is because the credit is nonrefundable, which means that it helps to decrease your tax liability. It doesn’t directly add to your income tax refund.
If you have no tax liability (1040 line 46), then taking the credit will not help you get closer to your maximum refund.
The child tax credit is also a nonrefundable credit – sort of. Before getting into that, though, let’s look at how it affects the child and dependent care expenses credit. If the child tax credit zeroes out line 46, you will not be able to take the child and dependent care credit. However, if there is anything from the child tax credit left over after line 46 is zeroed out, or if the credit adds up to more than $1,000, that leftover amount becomes a refundable credit, which means it will increase your refund. That leftover amount is called the additional child tax credit and appears on line 65 of your income tax return.
Of course, every tax situation is different, but the general rule of thumb is to check on the child tax credit and additional child tax credit before worrying about the child and dependent care expenses credit. This is because using the child tax credit is usually to your benefit, as the leftover amount can be used to increase your income tax refund.