2022 Child and Dependent Care Credit

As mentioned in last week’s tax tip, the American Rescue Plan provided big tax breaks in 2021 that benefitted many families. Among them was the increased Child and Dependent Care Credit. For 2021, taxpayers could claim up to $8,000 of qualifying childcare expenses for one child and $16,000 for two or more children. Based on income, taxpayers were able to claim a maximum tax credit equal to 50% of these expenses. However, the enhanced credit expired at the end of 2021 and is not available for 2022.

2022 Changes

The credit has reverted to allowing a maximum of $3,000 of childcare expenses for one child and $6,000 for two or more children. Due to the lower phase outs, most qualifying taxpayers will be limited to a credit equal to 20% of the allowable childcare expenses. At just $15,000 of adjusted gross income, the credit begins reducing from 35% to 20%. Additionally, this credit was fully refundable with the 2021 provisions but has reverted to non-refundable for 2022.

The requirements to be a qualifying person for the Child and Dependent Care Credit have not changed.  Qualifying persons include:

  • A taxpayer’s dependent who is under the age of thirteen when the care is provided.
  • A taxpayer’s spouse who is physically or mentally unable to care for themselves and lives with the taxpayer for more than half the tax year.
  • Someone who is physically or mentally unable to take care of themselves and lives with the taxpayer for six months and is either the taxpayer’s dependent or would be the taxpayer’s dependent if it weren’t for exceeded income, filing a joint return, or being able to be claimed as a dependent on someone else’s return.

Due to the reduced amount and age limits of the Child and Dependent Care Credit, you may see changes in your tax liability for 2022. Please reach out to your tax advisor at Ketel Thorstenson to find out how this may impact your 2022 tax return.

February 28, 2023

2022 Child Tax Credit

The American Rescue Plan of 2021 supplied big tax breaks for many families. Among them was the increased child tax credit of $3,000 per child over the age of six and $3,600 per child under the age of six. Also there was a higher age limit of 17 and many received monthly prepayments of the credit up to $300 per month per child in 2021 due to the expanded credit. However, all of these enhanced benefits expired at the end of 2021 and are not available for 2022.

Changes for 2022

The child tax credit has reverted back to $2,000 per qualifying child and the qualifying age has decreased from 17 to 16.  While in 2021 the credit was fully refundable, it now reverts back to only being partially refundable (up to $1,500) in the lower income phase-out ranges.

The phase-outs of the child tax credit are based upon income rather than number of qualifying children. The credit phases in with earnings above $2,500 and begins to phase out at adjusted gross income (AGI) over $400,000 for married filing joint filers and AGI over $200,000 for all other filers. In addition, there are no monthly advance payments of the credit for 2022.

Added requirements of the child tax credit that have not changed include:

  • The dependent must be your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these (i.e., a grandchild, niece, or nephew).
  • The dependent must provide no more than half of their own financial support during the tax year.
  • The dependent must have lived with you for more than half the tax year.
  • The dependent must be properly claimed as such on your tax return.
  • The dependent must be a US citizen, US national, or US resident alien.

Due to the reduced amount and age limits of the child tax credit, you may see changes in your tax liability for 2022. Please reach out to your tax advisor at Ketel Thorstenson to find out how this may impact your 2022 tax return.

February 21, 2023

2021 Individual Tax Breaks That Have Expired – How Will They Impact You?

As we inch closer to the end of the year, there is no better time than now to start thinking about your 2022 tax return. There were big tax breaks in 2021 for individuals that you may have taken. However, due to lack of congressional action, many tax benefits have expired at the end of 2021 and will not be available for 2022. While there is still time for Congress to extend some or all of these provisions and make them retroactively available for 2022, which they have done in the past–at this point it seems unlikely. Here is a list to help you understand what expired and how they may affect you.

  • Child Tax Credit
    • Reverts back to $2,000 per child (from $3,000 per child)
    • Reduces the child age back to under 17 to qualify (from under 18)
    • Is no longer fully refundable
      • Reverts back to lower income phase-out
        • AGI over $75,000 for single filers
        • AGI over $112,500 for head of household filers
        • AGI over $150,000 for married filing joint filers
    • No monthly advance payments of the credit
  • Child & Dependent Care Tax Credit
    • Reverts back to 20% (from 50%)
    • Reverts back to very low AGI phase-out
      • At $15,000 it begins reducing from 35% to 20%
    • Lowers qualified expenses back to $3,000 for 1 child and $6,000 for 2 or more (from $8,000 and $16,000)
    • Credit is non-refundable
  • Earned Income Tax Credit (EITC)
    • Minimum age for childless worker back to 25 (from 19)
    • Maximum age limit back to 65 (from no limit)
    • Maximum credit for childless worker drops to $560 (from $1,502)
    • Expanded eligibility for former foster youth and homeless youth is dropped
    • Rule allowing you to use your 2019 earned income to calculate EITC if it boosted your credit amount is dropped
  • Charitable Gifts
    • The ability to deduct $300 for single and $600 for married filing joint without itemizing expires
    • Reverts back to 60% AGI limit (from 100%) on Schedule A if itemizing.
  • Miscellaneous changes
    • Ability to deduct premium mortgage insurance as mortgage interest has ended
    • Cafeteria plan deferrals for child care revert back to $5,000 (from $10,500)

Due to some of these changes, you may find in April of 2023 that you have a balance due, when you were expecting a refund.

Please call your tax advisor at KT for assistance in looking at the impact of these changes.

September 27, 2022

More Accurate Filing – IRS Now Accepting Electronically Filed Amended Returns

Over the last 30 years, the ability to e-file returns with the Internal Revenue Service has grown substantially. However, the 1040-X, Amended US Individual Income Tax Return, has always been required to be filed with the Internal Revenue Service (IRS) on paper. On August 17, 2020, the IRS announced that taxpayers can now electronically submit their amended 1040 returns, Form 1040-X, in an exciting major milestone in tax administration.

The IRS receives over 3 million Amended US Individual Income Tax Returns annually which all had to be filed on paper until now. This decision will make it easier, faster, and most importantly more accurate to file and process amended individual returns for everyone; including: taxpayers, tax professionals and the IRS.

The IRS, along with the tax software and tax professional industry, have worked toward this goal for many years. Due to the details required on the Form 1040-X and attachments that are required, it has been a challenge to convert these returns into an electronic process. The Internal Revenue Service Advisory Council (IRSAC) and the Electronic Tax Administration Advisory Committee (ETAAC) along with the Internal Revenue Service IT and business operations teams have worked tirelessly to accomplish this task.

The process is currently only available for tax year 2019 Forms 1040, US Individual Income Tax Returns,  and 1040-SR, US Tax Return for Seniors. The IRS is hoping to roll it out to more years as well. The IRS will still accept paper filing of the 1040-X if preferred.

In addition, the Where’s My Amended Return online tool is available to check the status of the amended return.

Ketel Thorstenson, LLP is here to help you with all your amended return questions and filings.

September 25, 2020