2022 Child Tax Credit Update
English Lucas Priest and Owsley, LLP
As a tax attorney (in addition to the other hats I wear), I often get questions from friends and family about taxes this time of year. One that seems to be recurring this year is the Child Tax Credit. My friend texted me a comparison of their large refund last year and the amount OWED this year and asked, “Is this right???”
Most likely…yes. Allow me to explain why.
The Child Tax Credit for 2021 was much larger than what it is for 2022 (and what it was for years prior). Under the American Rescue Plan of 2021, Congress increased the Child Tax Credit from $2,000 per child to $3,000 per child. This increase not only applied to household children under the age of 17, but also to children who turned 17 in 2021. The credit was fully refundable and increased to $3,600 per child for children under age 6. Half of that credit was delivered in advance via monthly payments, while the other half was taken as a credit on your income tax return.
For 2022, the Child Tax Credit has reverted to $2,000 per child, only applies to household children under the age of 17 (as of December 31, 2022) and is only partially refundable – basically reverting to pre-2021 law. The credit is refundable up to $1,500 per child for lower-income folks, but there is a $2,500 earned income floor. On the other end of the spectrum, the credit begins to phase out if your modified adjusted gross income (AGI) exceeds $400,000 for married filing jointly and $200,000 for single or head-of-household filers. The phaseout is a $50 reduction for every $1,000 (or fraction thereof) over the applicable threshold.
Why do I tell you this? For those folks with qualifying children, don’t be surprised if your tax refund is not as large as it was last year, or if you owe the government quite a bit more this year as compared to last year. For W-2 employees, make sure you check with your employer each tax year to ensure that your withholdings are in line with your tax and familial situation. For other earners, it is wise to check with your tax professionals each year to review any tax law changes applicable to your tax and familial situation.
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