What Is the Child Tax Credit?

Last year, some parents may have received thousands of dollars from the government in the form of child tax credit refunds. However, they shouldn’t expect to see a repeat of those payouts this year.

Provisions within the American Rescue Plan Act of 2021 that greatly expanded the credit and made it fully refundable have expired. While taxpayers can still claim a child tax credit, it is not nearly as generous as it was last year.

Still, people should not discount the value of this credit. Keep reading for answers to common questions about the child tax credit and how it has changed.

What Is the Child Tax Credit?

Originally enacted as part of the Taxpayer Relief Act of 1997, the child tax credit was initially a $500 nonrefundable credit that could be applied by eligible families toward their federal income tax bill. Over the years, it has been expanded multiple times, reaching its highest point in 2021.

“The child tax credit is a way for the government to support families,” says Kenneth Chavis IV, a senior wealth manager with LourdMurray, a Los Angeles-based wealth management firm.

For 2022 tax filings, it provides a partially refundable credit of $2,000 to income-eligible parents whose children are younger than age 17. A tax credit reduces the amount of taxes owed dollar for dollar.

[READ: Tax Prep Checklist: Collect These Forms Before Filing Your Taxes.]

Is the Child Tax Credit the Same as the Child and Dependent Care Credit?

No, these are separate credits, and taxpayers may be eligible to claim both.

“The government recognized that being a working parent is tough,” says Eric Bronnenkant, head of tax for online advisory firm Betterment. As a result, it offers an additional credit for those who need to pay for child care so they can work.

The child and dependent care credit provides a maximum credit of up to 35% of $3,000 spent on care for one qualifying person, or up to $6,000 spent on care for two or more qualifying persons. The credit amount is dependent on income, and taxpayers who earn more than $43,000 a year can claim a credit equal to no more than 20% of allowable expenses.

How Much Is the Child Tax Credit?

For the 2022 tax year, the child tax credit is $2,000 and can be claimed for each eligible child who is younger than age 17. This is significantly lower than what parents could claim last year.

“For 2021, the child tax credit was expanded, and depending on the child’s age, you could potentially get up to $3,600 per child,” Bronnenkant explains.

What’s more, the 2021 tax credit was fully refundable, and that meant that even parents who didn’t owe taxes could receive the full credit amount back as a refund. For 2022, only up to $1,500 is refundable. The IRS refers to this refundable portion as the additional child tax credit.

What Happened to Advance Payments for the Child Tax Credit?

A notable provision of the American Rescue Plan Act was that it instructed the IRS to make advance payments to families who were expected to be eligible for the child tax credit in 2021. These payments were equal to half a family’s expected credit and sent monthly.

However, like the expanded credit amount, the provision for advance payments ended on Dec. 31, 2021.

“Now it’s just a straightforward credit,” says Guy Finocchiaro, a certified public accountant in Melville, New York.

While there was discussion in Congress at the end of 2021 about extending the provisions of the enhanced credit, there was not sufficient support among legislators for doing so at that time. However, some say that could change if the economic situation in the country worsens.

“I haven’t heard anything about them doing another advance tax credit, but we are heading into a recession,” Finocchiaro says.

[Read: How to File a Tax Extension.]

Who Is Eligible to Claim the Child Tax Credit?

Taxpayers must meet income requirements to claim the child tax credit. A person’s adjusted gross income, or AGI, must fall below $200,000 for single filers and $400,000 for those married filing jointly to receive the $2,000 child tax credit.

Those with incomes above these amounts will see their credit decline $50 for each $1,000 in income earned above the threshold amount.

Beyond the income requirement, a child must live with you at least half the year, have a Social Security number and rely on you for support to be claimed for a credit.

If parents are divorced or separated, only one can claim the credit. “A lot of times … it might be spelled out in the divorce agreement,” Chavis says. For instance, a couple might agree to alternate years for claiming the credit.

Being able to claim a child as a dependent has other benefits for a single parent, as well.

“If you have a qualifying child, you can file as head of household,” Chavis explains.

That means your standard deduction will be higher, and you may be subject to higher phaseout thresholds for other tax deductions and credits.

How Can I Claim the Child Tax Credit?

To receive a child tax credit, you’ll have to file a federal tax return.

Most tax software programs will walk you through the qualifications for the child tax credit. As long as you are entering information accurately and completely, you shouldn’t run afoul of the rules.

However, if you have any questions, talking to a tax professional is advisable.

What if I Forgot to Take the Child Tax Credit Last Year?

If you forgot to claim a child tax credit, you can go back and amend your previous return to receive it. However, your child must have had a Social Security number issued by the due date of the return to receive the credit.

Will the Larger Child Tax Credit Come Back?

That seems unlikely right now, although it’s not out of the question. “I think there may be some push to increase the tax incentives that parents receive,” Chavis says.

But for now, parents will have to be content with the $2,000 child tax credit that is allowed under current law.

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What Is the Child Tax Credit? originally appeared on usnews.com

Update 01/17/23: This story was published at an earlier date and has been updated with new information

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