What do you need to know about changing tax credits?
In response to the financial hardship that many Americans faced over the course of the pandemic, the US government introduced The American Rescue Plan in 2021, a tool to deliver direct financial relief. Child tax credits were a key part of the plan, offering quick relief to families with children.
But some elements of the Child Tax Credit are set to revert to pre-2021 levels. When you go to file your 2022 taxes in 2023, for example, you’ll find the tax credit for each child has gone back to $2,000 per child from $3,000 per child in 2021.
The change leaves many Americans questioning the best way to make the most of child tax credits.
Can I claim 2021 amounts later, if I didn’t use them? I’ve recently had a raise—do I still qualify for child tax credits?
We’re here to help answer your questions. With recent changes to child tax credits, it’s more important than ever to understand how to make the most of them.
Let’s take a closer look. Here are a few important things to consider about child tax credits:
1. The Impact of the American Rescue Plan
First, a brief history. The American Rescue Plan was a bill introduced in 2021 to help relieve the financial burden of the pandemic on families. In addition to sending money to qualified working families, the government increased the Child Tax Credit from $2,000 to $3,000 per child, aged 7 to 17. For children aged 6 years and under, the tax credit increased from $2,000 to $3,600.
For the first time, up to half of the money available for child tax credits was distributed through monthly checks of $250 to $300. These tax advances were sent between July and December 2021. Eligible parents could then receive up to half of their tax credits when they filed their 2021 tax returns.
There were also increases to tax credits, specifically designed to benefit childcare providers and families, to help them cover the cost of childcare. Child tax credits were made fully refundable, helping low-income households to receive the full benefit of the credit.
Together, these credits, alongside a long list of financial relief tools, helped an estimated 66 million kids and their families through the 2021 tax year.
But, when Congress voted not to continue the American Rescue Plan, the child tax credits for Americans reverted to $2,000 per eligible child. What does this mean for you and your family?
2. Some Benefits Remain
Thankfully, not all 2021 tax changes were fully reversed. The qualifying age is one element of the American Rescue Plan that remains in place for 2022. Until 2021, the age limit for child tax credits was 16. Under the American Rescue Plan, it expanded to age 17, where it remains.
While this may seem like a small change, it makes a significant difference for families with children turning 17 this year.
In addition, the Child Tax Credit for 2022 features lower income limits than those used for the original credit. Families who do not qualify for new limits are still eligible for a $2,000 child tax credit.
Finally, child tax credits are fully refundable for the 2022 tax year. This means eligible families can receive child tax credits as cash, even if they don’t owe federal income tax. Prior to the American Rescue Plan, the reimbursable portion was restricted to $1,400 per child and even then, only when requirements were met.
In other words, you do not need to have any earned income or to owe taxes to receive the full credit for which you are eligible.
3. Get Organized
By now, you may be wondering if you missed out on available tax credits in 2021, at the peak of their generosity. Perhaps you haven’t filed taxes in a while and are wondering if it makes sense to do so, given the impact of bills such as the American Rescue Plan.
Whether you’ve been filing faithfully each year or you’ve missed several returns—maybe the Internal Revenue Service (IRS) has even come looking for you—you may be wondering if you’ve had full access to the tax credits for which you are eligible.
As a first step in filing your taxes, it is important to get organized. Gather information such as:
- Tax ID numbers for you, your spouse, children and other dependants
- Details about any stimulus payments you have received—also known as Economic Impact Payment (EIP)
- Identity Protection PIN, if you have one issued by the IRS
- Documentation of income (including Form W2 for employees, Form 1099 for self-employed, records of rental income and expenses, etc.)
- Records of retirement income
- Investment income on savings, stocks, property, dividends, etc.
- Other documentation relevant to your taxes
Once you have this information in hand, you’ll be better prepared to file and make a claim that could maximize your child tax credits. Of course, it can be hard to keep up with current tax laws and provisions. To maximize your return and make the most of available tax credits, it is best to turn to professionals.
4. Find the Help You Need
Just as you would turn to a lawyer for legal issues, it is essential to seek the help of a professional when it comes to tax planning and issues related to taxes. While many Americans assume they can—or should—do their own taxes, they could be missing out on tax credits and other savings.
If your taxes are complex or the IRS has come looking for back taxes, a tax planning professional can deliver peace of mind. Tax experts are proficient at their work. They can save you time and handle your return with accuracy and attention to detail.
Importantly, a tax professional knows how to handle tax anomalies or potential issues as they arise, as well. As tax rules and laws change—as they have recently with child tax credits—tax professionals are both up to speed and ready to help you maximize any gains.
Even if you are facing something more complex—tax liens, delinquent taxes, tax relief or an Offer in Compromise—having the right support can give you total peace of mind.
Of course, not every tax professional is equal. As you seek tax planning help or even someone to help you with a single issue such as child tax credits, be sure to look for an experienced, professional team with a strong track record and exceptional reviews.
At Franskoviak Tax Solutions, we have helped our clients with tax planning for more than 30 years. We take pride in handling the details of tax planning, including making the most of child tax credits and finding other tax savings. We not only file personal and business taxes but also help with IRS tax relief and tax problems such as IRS tax notifications, tax liens, delinquent taxes and more.
Headquartered in Michigan, with locations in St. Petersburg, Florida, Cincinnati, Ohio and Indianapolis, Indiana, Franskoviak Tax Solutions provides comprehensive tax services with first-class expertise and a personalized, boutique-style approach.
Start with a free consultation—we’re here to help you maximize your child tax credits as part of an overall tax planning strategy.