Congress did not extend certain enhanced tax credits in the American Rescue Plan targeting those impacted by the Covid pandemic. This could lead to smaller refunds and possibly a balance due for tax year 2022 tax returns. The key changes are summarized below.
| 2021 Maximum | 2022 Maximum | |
| Child Tax Credit (CTC) per qualifying child | $3,600 | $2,000 |
| Credit for Child and Dependent Care Expenses | ||
| · One qualifying child | $4,000 | $1,050 |
| · Two or more qualifying children | $8,000 | $2,100 |
| Earned Income Credit (EIC) | ||
| · No dependent | $1,502 | $560 |
| · Three or more dependents | $6,728 | $6,935 |
Child Tax Credit (CTC)
The CTC provided as much as $3,600 per qualifying child in 2021. This non-refundable credit amount will decrease to $2,000 in 2022. However, certain taxpayers who get less than the full amount of the CTC in 2022 may be entitled to the Additional Child Tax Credit, which is refundable and up to $1,500 per child.
Credit for Child and Dependent Care Expenses
This credit is for childcare costs for children under 13 that enable the parent to work, look for work, or attend school. For 2021 it ranged from up to $4,000 for one qualifying child and up to $8,000 for two or more qualifying children. For 2022 this non-refundable credit decreases to a range from up to $1,050 for one qualifying child and up to $2,100 for two or more qualifying children.
Earned Income Tax Credit (EIC)
The EIC for 2021 ranged from up to $1,502 with no qualifying children to $6,728 with three or more qualifying children. For 2022, this refundable credit ranges from up to $560 with no qualifying children to up to $6,935 for three or more qualifying children.
Recommended Action
To better understand the impact of these changes, we recommend clients have their tax year 2022 return prepared as early as possible, file electronically, and have refunds directly deposited.
“Article originally posted February 22, 2023. Updated to preserve the information on 1/12/2024.”