By: Victoria Paone Rosa, Esq.*
If you have young children, you may be able to save money when you file your federal income tax returns for the tax year 2022; however, the 2022 child tax credits are significantly less than the 2021 child tax credits.
What has changed with regard to taxes and your children?
Initially, pursuant to the Tax Cuts and Jobs Act of 2017, the tax credit that you received for having a child age 16 and under doubled to $2,000,00 per child. Pursuant to the American Rescue Act of 2021, the age limit increased to age 17 and the amount of the child tax credit increased to $3,000.00 per child for children ages 6 through 17, and $3,600.00 for children ages 5 and under. For 2022, the age limit returned to age 16 and the amount of the child tax credit decreased to $2,000.00 per child across the board. Remember that this change concerns only your federal return, not your New Jersey state income tax return.
What portion of the child tax credit is refundable?
Pursuant to the Tax Cuts and Jobs Act of 2017, the refundable portion of the child tax credit was limited to $1,400.00 per child. Pursuant to the American Rescue Act of 2021, the child tax credit was fully refundable for 2021. For 2022, only up to $1,500.00 of the credit is refundable if the taxpayer meets certain income thresholds.
By way of illustration, if your tax liability amounts to $4,000.00 and you apply a child tax credit for $2,000.00, your tax liability will reduce to $2,000.00 for 2022. Likewise, if you owe zero dollars in taxes to the IRS and apply a child tax credit for $2,000.00, then you may be refunded up to $1,500.00. That is right, you can still get cash back for having children in 2022, but not as much as in 2021!
What are the necessary requirements for obtaining a child tax credit?
There are several requirements that you must fulfill in order to take advantage of this tax savings, the most important of which include having a child age sixteen and younger and living with your child for more than half of the year. In the context of a divorce, the parent of primary residence, or the parent with whom the child resides for more than 50% of the time, is the parent who is eligible to receive this credit. Notwithstanding, parties going through a divorce may be able to negotiate an agreement such that the parties can alternate claiming this credit.
Remember that the law has changed as to who is eligible for the child tax credit. Pursuant to the Tax Cuts and Jobs Act of 2017, single taxpayers with a modified adjusted gross income of up to $200,000.00 and taxpayers filing jointly earning up to $400,000.00 were eligible to claim the credit for $2,000.00 per eligible child. Pursuant to the American Rescue Act of 2021, single taxpayers with a modified adjusted gross income of $75,000.00 or less, taxpayers filing head of household with income of $112,500.00 or less, and taxpayers filing jointly earning $150,000.00 or less were eligible to claim the additional credit amount. In 2022, the per-child credit of $2,000.00 is available to single, married filing separate, and head of household filers with modified adjusted gross income of $200,000.00 or less. In addition, taxpayers filing jointly with modified adjusted gross income of $400,000.00 or less are eligible to claim the additional credit amount. Above these thresholds, the credit amounts begin phasing out in increments of $50.00 for every $1,000.00 of additional modified adjusted gross income.
Why is this information important?
Tax laws are constantly in flux, and it is important for people to remain informed as to the tax law changes that specifically impact them and their families. Families with children should consult their tax advisor regarding changes in the tax laws that relate to the child tax credit for the 2022 tax year.
* (Editor’s note: Victoria Paone Rosa, Esq. is an associate at the Law Offices of Paone, Zaleski & Murphy working out of the firm’s Red Bank office, located at 120 Maple Avenue. Victoria limits her practice to divorce, child support, child custody, equitable distribution, alimony, domestic violence, palimony, and all other family law issues.)