Child Tax Credit 2022: what changes will there be in the new tax season?

Enacted in 1997 as part of the Taxpayer Relief Act, the federal Child Tax Credit has undergone several changes over the years. The most drastic revamp of the tax provision was applied to the 2021 credit families with children could claim.

However, in the face of complete GOP opposition to President Biden and Democrats’ Build Back Better plan, and lacking the crucial 50th vote from Senator Joe Manchin to pass the legislation in the Senate, a powerful anti-poverty measure and large tax cut for millions of Americans through the enhance Child Tax Credit expired. Families will still be able to claim up to $2,000 each year until 2025, but there will be more restrictions to who will be eligible for the credit.

How does the Child Tax Credit work for the 2022 fiscal year?

Prior to the expansion and boost to the Child Tax Credit in the spring of 2021 under the American Rescue Plan, the last revision of the tax code in 2017, the Tax Cut and Jobs Act (TCJA) doubled the credit to $2,000 per child. This will be the amount that eligible taxpayers with children under 17 at the end of 2022 will be able to claim when they file their tax returns next year, minus any last-minute surprise. Democrats are still pushing to get an extension of the 2021 changes passed, and there have been discussions with Senator Mitt Romney on an alternate $350 monthly payment.

Who is eligible to claim the 2022 Child Tax Credit?

The TCJA made $1,400 per child of the credit refundable, so that if a taxpayer owed less than the amount, it would be added to their tax refund. This is known as the Additional Child Tax Credit (ACTC), but there are eligibility limits to receive the credit both a minimum and maximum earnings.

A filer claiming the credit would need to earn at least $2,500 to begin to be eligible for the credit. Above that earnings floor a taxpayer can claim 15% of their taxable income, and then subtract the credit from any taxes they owe. If the amount of the credit they can claim is greater than the amount of taxes they owe, that excess amount would be added on to their refund.

At the upper end, the credit phases out for individual taxpayers with earnings above $200,000 and married couples filing jointly with adjusted gross income over $400,000. The credit decreases by 5 percent for every increment of $1,000, or fraction thereof, in earnings.

In order to claim a refund for the credit taxpayers must fill out Schedule 8812 and file it with their tax return.

Additional tax credits for children and dependents

For each dependent that doesn’t qualify for the Child Tax Credit, taxpayers may qualify for a $500 Credit for Other Dependents. These can include certain dependents 17 or older, including dependent parents or other relatives. As well dependents living with a taxpayer but not related. This tax credit is not refundable and begins to phase out for individuals earning more than $200,000 a year and $400,000 for joint returns.

Taxpayers will want to check the IRS online tool to determine whether their child or dependent qualifies for the Child Tax Credit or the Credit for Other Dependents. The agency also provides another online tool to see who qualifies as a dependent.

Likewise, in addition to the Child Tax Credit and Credit for Other Dependents, taxpayers can claim the Earned Income Tax Credit. This provision is a refundable tax credit that is targeted at low- and moderate-income workers.

Taxpayers who incur expenses to have young children or dependents cared for while they work can also possibly claim the Child and Dependent Care Credit. The IRS will reimburse you for a portion of cost of services and expenses related to the services provided.