Final answer:
Employers report child care expense assistance on the taxpayer's Form W-2, Box 10. The Child Tax Credit (CTC) and Earned Income Tax Credit (EITC) are separate tax benefits from child care expenses, with the CTC designed to support families with children and the EITC acting as an income supplement.
Step-by-step explanation:
The employer reports the amount of child care expense assistance to the taxpayer on Form W-2, Box 10. This benefit is known as the dependent care benefits and can include amounts the employer paid directly to a childcare provider or through a flexible spending account. It's important for taxpayers to know this figure as it can affect the calculation of the Child and Dependent Care Credit when filing their taxes.
The Child Tax Credit (CTC), often confused with child care expenses, is a separate tax benefit that underwent changes in recent legislation, which increased the amount of the credit and adjusted the age of eligible children. The CTC was expanded from $2,000 per child to $3,600 per child under the age of 6 to help reduce child poverty and support families as part of the American Rescue Plan introduced by President Joe Biden. However, it's relevant to distinguish that the CTC is not a child care expense benefit; instead, it acts more like a universal basic income for families with children, meant for helping with general living expenses.
The Earned Income Tax Credit (EITC) is yet another tax credit but is based on the recipient's income and number of children, acting as a supplement to income for working low-income families. Understanding the different types of tax credits and benefits, their eligibility criteria, and how they are reported is crucial for taxpayers, especially those looking to maximize their tax returns and take advantage of government support programs.