The Child Tax Credit in 2022 will return to the conditions offered by the IRS before the American Rescue Plan expanded it. The amount of the credit is smaller, and eligibility is more restricted than last year under the rules which were established through the 2017 Tax Cuts and Jobs Act (TCJA). These changes will be in effect through the 2025 fiscal year, if no action is taken by Congress to modify the credit before then.
A big change that helped many families last year, instead of receiving monthly installments on the credit as they did from July to December in 2021, the money will be distributed in the form of a single tax credit which will either reduce the size of the recipient’s tax bill or increase their tax refund.
Taxpayers with eligible children will be able to claim a credit worth up to $2,000 per child. This year the credit is partially refundable, and there is an earnings threshold to be able to start claiming the up to $1,400 portion known as the “Additional Child Tax Credit”.
Taxpayers who owe less in taxes than the refundable amount will have it added to their tax refund, the non-refundable portion will reduce taxes owed dollar-for-dollar.
What children are eligible for the 2022 Child Tax Credit?
The 2022 Child Tax Credit is available to parents with dependents under the age of 17 at the end of the year, December 31, 2022, and who meets certain eligibility requirements. Under the enhanced credit, children aged 17 were eligible for the full amount of the much larger 2021 Child Tax Credit.
For tax years 2022 through 2025, the child must be eligible to be claimed as a dependent on the taxpayer’s return and live at the same residence as the taxpayer for more than half the year. The child cannot provide more than half of their own financial support during the tax year.
The child must have a valid taxpayer identification number in the form of a work-authorized Social Security number (SSN). Prior to the TCJA and under the 2021 souped up version, taxpayers could claim children that have an individual taxpayer identification numbers (ITIN) which are issued by the IRS, not the Social Security Administration.
Taxpayer income requirements to claim the 2022 Child Tax Credit
Parents of eligible children must have an adjusted gross income (AGI) of less than $200,000 for single filers and $400,000 for married filing jointly to claim the full credit. For every $1,000, or fraction thereof, in excess of those thresholds, the credit is reduced by $50.
For lower-income Americans, they must have an income of at least $2,500 to be eligible for the refundable portion of the credit. The amount that can be claimed is a portion of earnings above that threshold. To calculate how much can be claimed, you need to subtract $2,500 from your “earned income”, for example Social Security benefits and unemployment compensation do not count, and then multiply that number by 15 percent.
Child Tax Credit program was expanded substantially last year
President Biden’s massive $1.9 trillion relief package was designed to provide financial support for American families and the boosted Child Tax Credit was one of the most effective measures.
The temporary expansion upped the total amount on offer to $3,000/$3,600 per child, nearly doubling the previous maximum entitlement for parents with young children. It also made the credit fully refundable, ensuring that even low-income households would be able to receive the full value of the credit.
However most crucially, the payment structure was altered to distribute the credit in the form of monthly direct payments. Democrats had hoped to extend the credit into 2022 and beyond, but families only experienced the direct payments for the last six months of 2021. This equated to a monthly direct deposit of $300 for children aged younger than five, and $250 for those aged 6- 17.
Democrats in Congress push for further expansion
Numerous studies have linked the 12-month Child Tax Credit expansion to a decrease in childhood poverty and first-hand accounts from those who received the payments concurred. A study from the Center on Budget and Policy Priorities found that the credit had helped reduce child poverty in the United States by around 40%.
However Biden was unable to secure an extension to the program when Congressional Republicans refused to support his Build Back Better legislative proposals in late 2021.
A number of Democrats in the Senate are making a concerted push for a Child Tax Credit expansion to be brought to the floor again, and experts have noted that the proposal in isolation does have some bipartisan support.
sen. Sherrod Brown confirmed, “We’re still working on it”in an interview with CNBC, adding, “I have not done anything that got the response at home and around the country that that did.”
Andrew Carothers, research analyst at the Bipartisan Policy Center, has pointed out that the proposal does also have a decent bipartisan appeal in the Senate, unusual at a time of such polarization in the political discourse.
“There is a really strong bipartisan legacy with the child tax credit,” he said. “That’s really an avenue for durable policy change and ensuring the future of the credit stays as successful as it’s been in the past.”