Child Tax Credit and 2022 Taxes
Recent changes to the Child Tax Credit, triggered by The American Rescue Plan Act of 2021, was made so low-income families could have easier access to these funds. The refund amount was also increased in an effort to provide more economic relief.
In April, President Joe Biden announced the American Families Plan, which was another proposed solution to the ongoing COVID-19 pandemic and the economic hardships it has caused amongst lower-income families. The Child Tax credit also underwent changes, according to a White House press release:
“For a family with two parents earning a combined $100,000 per year and two children under six, the Child Tax Credit expansion means an additional $3,200 per year in tax relief. For a family with two parents earning a combined $24,000 per year and two children under six, the expansion means even more, with a credit increase of than $4,400 because the full credit was not previously fully available to them.”
What Effect Will it Have?
Changes to the Child Tax Credit may result in recipients owing money to the IRS in 2022, depending on a variety of factors. However, there are certain steps that you can take to avoid paying income taxes on these funds.
One way to avoid having to pay any taxes is to unenroll or opt out of the monthly child tax credit payments. If you fail to do this, you will automatically receive half of the amount from the IRS.
Even if you unenroll, you may get more child tax credit money that you qualify for because your household details are not up to date. In this case, there may be money owed to the IRS. There are other factors to consider if you’re trying to gauge how much you will owe.
A better paying job can push you out of your current income bracket and into a higher one. This move, while positive, can result in having to pay back money to the IRS.
As your children age, they can also push out of what they qualify for. The two levels are five year olds turning 6 in 2021 and 17 year olds turning 18 in 2021. Should either or both of these events occur, the amount of the credit is reduced or you could no longer qualify.
Custody change can also affect how you file when it concerns the child tax credit. Recently divorced parents who share custody, or a parent-custody change that has occurred in 2020 will mean that only one parent can claim the credit for any given child.
The IRS defines “main home” as the home you have lived in for most of the time during a given taxation year or the only home you own. If your main home was in the United States for more than half of 2020, but not in 2021, you no longer qualify for these payments.
What Should I Do?
Understanding the child tax credit information can be difficult and confusing – not to mention expensive should you owe money to the government. Instead of taking a do it yourself approach, working with a professional Certified Public Accountant firm like Taurus is your best answer.
We are experts at helping our clients prepare and file their taxes, and our team of CPAs are well versed in the current tax laws, and can serve as expert resources for all of your questions and prepare custom tailored tax solutions.
Contact us today via our website or call 410-465-4600.