2021 was a special year for the Child Tax Credit. In 2022, the credit reverts to its prior rules — it will be smaller, only partially refundable, and no longer available to the lowest income Americans.
What is a Child Tax Credit?
The Child Tax Credit is an annual allowance given to eligible parents and caretakers to lower their federal tax bill.
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Typically the credit is claimed once a year when you file your taxes. In 2021, President Biden’s American Rescue Plan Act temporarily restructured the credit so that more families qualified and they received part of the credit in monthly cash installments.
How the Child Tax Credit Has Worked Historically
The Child Tax Credit was last updated by the Tax Cuts and Jobs Act (TCJA) in 2018. In 2021, the credit was temporarily expanded by President Biden’s American Rescue Plan Act. From 2022 through 2025, the credit will revert back to its TCJA form.
The temporary expansion of the Child Tax Credit put more money in the pockets of more families, according to estimates from the Tax Policy Center. Ninety-two percent of families with children are getting an average credit of $4,380 for the 2021 tax year.
Under the pre-2021 framework, 89% of families with children received an average credit of $2,310.
The Child Tax Credit in 2020 and 2022
The maximum credit is $2,000 per child under age 17. People with annual incomes between $2,500 and $200,000 (or $400,000 for married couples filing taxes jointly) and at least one qualifying child are eligible for the full credit. If you have income over that level, the credit is reduced.
If your tax bill is lowered to $0 after applying the Child Tax Credit, you can get up to $1,400 back as a refund. This is called the Additional Child Tax Credit.
The Child Tax Credit in 2021
These were the major changes to the Child Tax Credit for 2021:
- The maximum amount increased to $3,000 per child ages six to 17 and $3,600 per child under age six
- The minimum income requirement was removed
- The maximum income requirement to get the full credit was lowered to $112,000 for single parents and $150,000 for married couples who file taxes jointly
- Half of the taxpayer’s total credit was paid in six monthly installments
- The other half of the taxpayer’s credit is claimable on the tax return they file in 2022
- Any unused credit is fully refundable (except for U.S. taxpayers who live abroad)
In order to determine eligibility for the advance monthly payments in 2021, the IRS had to use income records from the previous tax year. Because of this, some people may have received advance payments even though they don’t qualify for the 2021 version of the Child Tax Credit.
When you file your 2022 taxes, the IRS will determine whether any advance Child Tax Credit you received in 2021 was accurate. If you were overpaid, you may have to send the excess back. If you qualify for additional credit, the amount will be applied to your tax bill.
Example of Child Tax Credit
Consider an example: A single parent with $70,000 in annual income claimed her two young children in 2020 and qualified for the Child Tax Credit. In 2021, the IRS looked at her prior year tax return and determined she was eligible for the revamped Child Tax Credit of $3,600 per child, or $7,200 total. From July to December 2021, she received $600 a month (totaling half of the credit).
When she files her 2021 tax return and reports how much she received in monthly payments, the IRS will check her income, the ages of her qualifying children, and any other relevant eligibility information to calculate her proper Child Tax Credit amount.
If her children were still under age six at the end of 2021 and her income was below the $112,000 limit for single parents, she’ll get the remaining half of the credit ($3,600) applied to her tax bill.
Read More: Guide to Filing Your Taxes in 2022
How the Child Tax Credit Will Look in 2022
While the House of Representatives passed legislation to keep the expanded version of the Child Tax Credit in place for another year, the plan was thwarted in the Senate.
The Child Tax Credit has now returned to its previous form for the 2022 tax year (it will come into play when you file taxes in 2023):
- The maximum credit is $2,000 per child 16 and under
- The minimum income requirement to qualify for the credit is $2,500
- The maximum income requirement to get the full credit is $200,000 for single parents and $400,000 for married couples filing jointly
- Any unused credit is refundable up to $1,400
Qualifying for the Child Tax Credit
The Child Tax Credit is for parents or caretakers who meet certain income thresholds and have a qualifying child.
Generally, a qualifying child is a dependent with a Social Security number who lives with the taxpayer for more than half of the year. When there are divorced or separated parents, only one person can claim the credit for a child in a given year.
For tax years 2018, 2019, 2020, and 2022, the child must be age 16 or younger at the end of the year. To qualify for the bigger credit in 2021, the child must be age 17 or younger at the end of the year. They can be a birth child, foster child, adopted child, stepchild, niece, or nephew.
If you have a qualifying child or children, then you need to meet the following income requirements to get the full credit:
|Filing Status||Tax Year 2021 – Modified Adjusted Gross Income (MAGI)||Tax Years 2018 to 2020, and 2022 – Modified Adjusted Gross Income (MAGI)|
|Head of Household||$0 to $112,500||$2,500 to $200,000|
|Married, Filing Jointly||$0 to $150,000||$2,500 to $400,000|
For incomes above these limits, the credit is reduced by $50 for each $1,000 of income until phasing out completely.
What to Consider When Filing Your Taxes in 2022 with a Child Tax Credit
There are a few extra steps to claiming the Child Tax Credit on your return this year.
In addition to listing the names and Social Security numbers of any qualifying children, you need to report the amount of advance monthly payments you received in 2021, if any.
This amount is listed on Letter 6419, which the IRS mailed to taxpayers in December and January. You can also find this information in your online account. Spouses who file taxes jointly will need to add their totals and report them together on one tax return.
Once the IRS compares how much of the credit you received in 2021 to how much you should receive, any balance you’re owed will apply to your tax bill and may result in a refund. If it turns out that you were paid too much, you may have to repay the excess to the IRS.
Even if you’re not required to file a tax return because your income isn’t high enough to owe taxes, you still need to file one to claim the Child Tax Credit.
Read More: How Long Does it Take to Get a Tax Refund
The Bottom Line
Families can save a lot on taxes by claiming the Child Tax Credit. In 2021, the credit was split into two parts. One half was paid in monthly installments and the other half is available as a lump sum when taxpayers file their returns. The upfront cash helped many parents cover their family’s basic needs, reducing monthly child poverty by nearly 30%.
Taxpayers who claim the Child Tax Credit for 2021 and have little or no tax bill will end up with a big refund. Here are a few ways you can start planning now to make the most of it:
- Read up on ways to spend, save, or invest your tax refund.
- Sign up for the Personal Capital Dashboard. Millions of people use these free and secure professional-grade online financial tools. You can use them to see all of your accounts in one place, analyze your spending, and plan for long-term financial goals.
- Consider talking to a fiduciary financial advisor for more detailed guidance on your financial plan.
Author is not a client of Personal Capital Advisors Corporation and is compensated as a freelance writer.
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