Taxes 2022:  Extra (Child) Credit

Tax refunds are one of the largest checks many families receive in a year, and the child tax credit could have a large impact on the size of that refund.  As part of the 2021 COVID relief packages, many updates were made to the child tax credit.  These changes were designed to help families with children during difficult economic times. Now that the tax return deadline is approaching, there are a few important  things to know about the credit.   

The maximum benefit could be higher on your 2021 tax return than in previous years.  The new measures created an Enhanced Child Tax Credit. Eligible parents can receive $3,600 for each child under 6, and $3,000 for each child under 17 on their 2021 tax returns, which are due April 15, 2022.  Previously, the credit was $2,000 per child under the age of 17.  The enhanced benefit phases out for single filers who earn over $75,000, heads of households earning over $112,400, and married couples who earn more than $150,000.  The existing benefit is still available for higher earning parents, and phases out for single filers earning more than $200,000, and married filers earning over $400,000.   

If you received part of your enhanced child tax credit in monthly payments during 2021, your tax refund will be smaller. As part of the COVID relief American Rescue Plan, parents could receive up to $300 each month of their credit from July through December.  Unless parents opted out of these monthly payments, this will reduce the remaining credit amount on your tax form.  The expected tax return payment could end up lower for these families.   

There are a few other tax planning considerations.  First, the enhanced child tax credit is only available for 2021.  Unless new legislation is passed, the maximum child tax credit will revert back to $2000 per child in 2022.   Second, divorced parents who share child custody could have received more than allowed under custody agreements, and discover they need to pay back funds received. Most importantly, however, make sure you file taxes, even if your income is below the minimum threshold for filing.  You can still be eligible for the credit and will receive a check, even if your income for 2021 made you exempt from paying income taxes.

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