2022 Child Tax Credit Update: A Return “Back to Normal”
After the complexities of the COVID-19 pandemic, it looks like the IRS is going back to a sense of normalcy by returning certain tax credits to their pre-pandemic rules.
For the 2022 tax year, taxpayers on their federal tax returns can claim the Child Tax Credit of $2,000 per qualifying child, and $500 for each of their other qualifying dependents who do not meet the requirements for a “qualifying child.” The Child Tax Credit is a nonrefundable tax credit that will help reduce a taxpayer’s federal tax liability amount on the federal 1040 tax form.
A qualifying child is considered a child related to the taxpayer who lived with the taxpayer for at least six months out of the calendar year. The age limit for a qualifying child is 16 years old. Once the child turns 17, the other dependent credit for $500 will apply.
The Child Tax Credit phases out once the taxpayer’s Modified Adjusted Gross Income (MAGI) goes above $400,000 for “married filing jointly” filers, and $200,000 for all other filing statuses.
Also, a portion of the Child Tax Credit could be classified as a “refundable credit” (lessening the impact for the taxpayer) when one of the following applies: 1) To the extent of 15% of the taxpayer’s earned income in excess of $2,500, or 2) for taxpayers with three or more qualifying children to the extent the taxpayer’s Social Security taxes exceed the taxpayer’s earned income credit. The refundable part of this credit is known as the Additional Child Tax Credit, and it will impact the total tax amount on the federal 1040 tax form.
* This article is not a complete listing of all the details related to this business / accounting topic and you should contact your CPA for a more detailed discussion regarding these items and how they may apply to your specific situation.
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