Here’s what parents need to know
Taxes can be confusing enough, but if you are a parent, tax season can bring up an entirely new batch of questions. What is the Child Tax Credit? Will payments continue in 2023? Do you qualify? How much can you claim for each of your kids? If you look for answers online, you may get conflicting information from different tax years as the rules tend to change every few years.
Child Tax Credit update for 2022 tax returns
The Child Tax Credit allows parents to claim tax credits on their children and subtract the amount for each eligible child from their total owed in federal income taxes. The credit amounts, income thresholds, and limits to refundable amounts are often changed by new laws passed in Congress.
Last year, the American Rescue Plan of 2021 temporarily expanded the Child Tax Credit to give people the extra money they needed during the pandemic. Rather than once a year, monthly payments were made available. Even families who owed little to no federal taxes could receive money.
While the credit remains available for 2022 tax preparation, the benefits parents can receive are back to normal (pre-pandemic) limits. With these changes, you’re not alone in wondering how to get the most out of child tax credits this year. We’ve laid out a few basic tips to help you understand the ins and outs of the program for filing your 2022 tax return during the 2023 tax season.
How much is the Child Tax Credit?
Are you assuming that the tax benefit is the same this year as it was last year? If so, you’ll need to shift your expectations and plan accordingly. In the 2021 tax year (which was filed in 2022), the Child Tax Credit was $3,600 for children 5 years old and under and $3,000 for children between 6-17 years old. For your taxes this year, you can only claim benefits of $2,000 for every child under 17 years old.
per child under 17
Child Tax Credit Changes
*These represent the maximum income in order to receive the increased benefits under the American Rescue Plan. The standard benefit of $2,000 per child under age 17 was still available for income limits of $400,000 for joint and $200,000 for single.
Sources: IRS.gov, WhiteHouse.gov
Helpful tip: Some websites and government resources still show information from the previous year or two. This is for people who may be behind on their taxes and are trying to catch up. Check to ensure you are following the information for the 2022 tax year, because rules can change annually and you don’t want to risk using outdated info.
Do you qualify for the Child Tax Credit?
Your family must meet quite a few standards for your children to be eligible:
- Again, the child must be under 17 years old on December 31, 2022, to qualify for that tax year.
- The child must have a valid Social Security number.
- The child must not have contributed more than half of their own financial support during the tax year.
- The child must have lived in your household for over half of the tax year.
- The child must be your child, stepchild, foster child, sibling, half-sibling, grandchild, niece or nephew. In other words, you must be legally recognized as their guardian.
- You must be a U.S. citizen or a resident alien.
- You must have a modified adjusted gross income of $200,000 or less. If you file jointly, that amount must be $400,000 or less.
- You must claim the child as a dependent on your tax return.
How to claim the Child Tax Credit
Complete a Form 1040
You must file the correct paperwork to ensure that you receive the full credit amount. You will complete the standard Individual Income Tax Return, Form 1040, and indicate the children in your household who are eligible for the credit.
Attach a Schedule 8812 Form
Additionally, you need to attach a Schedule 8812. This form allows you to calculate the amount of credits you are eligible for and enter the results on your Form 1040. It also contains sections for you to report advance Child Tax Credit payments you may have received in the previous tax season and record any taxes you owe due to receiving more than you qualify for.
The difference between State and Federal Child Tax Credits
Some states have their own form of a family tax credit. It may not be called a child tax credit, but it will still benefit your family if you qualify. You will need to check your specific state’s tax details to understand if and how you can get state tax credits in addition to the federal program.
Additional tax credits for families
Families may also be eligible for additional tax credits, such as the:
- Child and Dependent Care Credit
- Earned Income Tax Credit
- Adoption Credit and Adoption Assistance Programs
- Education credits
Even if your child or dependent does not meet the “qualifying child” criteria under the Child Tax Credit, your family may still qualify for the Credit for Other Dependents. The IRS even offers a 10-minute interactive tax assistant tool to help you determine your eligibility for either credit.
What are advance Child Tax Credit payments?
Advance Child Tax Credit payments were part of the one-year temporary provisions with the American Rescue Plan. Though advance payments are not available for 2023, it will still be helpful for you to know how they impact you if you are filing your 2022 tax return. With advance payments, the IRS paid half the estimated amount of the credit individuals were eligible to claim on their tax return in monthly installments starting 6 months prior to the usual one-time annual payment date.
Parents who were eligible for these advance payments in 2022, based on their 2021 tax return, received these payments automatically without filling out any extra forms or taking further action. The IRS sent letters to parents informing them of the estimated amount they were qualified to get in advance.
Payments are not considered income
Many people worry that their advance Child Tax Credit payments are taxable. But rest easy – these payments are not considered income, so you do not have to report them as such on your tax return.
However, you should pay close attention to the amount of each credit you can claim. If the total amount you receive in advance payments exceeds the amount you are eligible to claim, you may have to repay the extra amount on your tax return.
Another helpful tip: Since your advance child tax credit payments are not income, they will not affect any government benefits you can receive.
Stay safe from tax scams
During tax season, everyone must be wary of tax scams. Identity theft is common and can be very convincing, particularly when completing new forms and unfamiliar processes. Remember that the IRS does not contact you via email, text, or social media. If you receive any messages claiming to be the IRS through these channels, do not respond. Any emails “from the IRS” containing links or attachments are also scams.
Do you have the legal help you need for tax season?
As you prepare to file your taxes and claim the Child Tax Credit, it is helpful to know the basics. But taxes can get confusing fast, especially when they involve additional paperwork written in intimidating financial and legal jargon.
LegalShield provides you and your family access to an experienced law firm in your state whenever you need guidance – including tax season. A lawyer can review that paperwork, deconstruct the lingo to answer your legal questions, provide consultation for tricky details, and give you the peace of mind to make tax decisions confidently.
Tax Day is approaching quickly and falls on April 18, 2023. Sign up for our prepaid legal plan today to schedule a consultation for your taxes before they’re due!
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