Due to the economic impacts of the Covid-19 pandemic such as job loss, elimination of childcare options, workforce reduction, and increased prices of everyday necessities, the United States government introduced the American Rescue Plan. This legislation included increased tax credits to most taxpayers in the form of stimulus checks and adjustments to child tax credits. These were meant to be temporary relief to individuals and families at the height of the pandemic.
Congress has not extended certain enhanced tax credits and this could lead to smaller refunds, and possibly a balance due for 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 decreases to $2,000 for 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, to 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 to 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 up 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 return prepared as early as possible, file electronically, and have refunds directly deposited. This normally results in receiving a refund within 21 days. This approach will let clients know where they stand and adjust their budget if their refund falls short of expectations.