Child tax credit: here’s what you need to know for 2022



Millions of American families received their last child tax credit prepayment for 2021 this month – and that check could also be the last to be sent, as talks about an extension continue to stall in Congress.

President Joe Biden’s nearly $ 2 trillion social spending bill has reportedly extended this year’s expiring extensions of tax relief through 2022 to:

  • Increase the maximum credit to which households can claim to $ 3,600 per child aged 5 or under and to $ 3,000 per child aged 6 to 17;
  • Make the credit fully refundable; and
  • Distribution of eligible credit to families by monthly checks for the whole of 2022.

Now, however, that plan is in limbo, after the CEO lost on Sunday what likely would have been a deciding vote for Senator Joe Manchin, a Democrat from West Virginia. The legislator declared in a Appearance of Sunday Fox News that he could not support the bill due to lingering concerns about soaring inflation and the price the legislation has to pay.

Still, experts say this year’s expansions were perhaps the most bipartisan of all the safety nets – raising hopes that a deal can eventually be reached on renewing the program that has helped lift some 40% of children. of poverty, according to non-partisan Center for Budget and Policy Priorities estimates.

Here’s what you need to know about the Child Tax Credit as the timeline shifts from 2021 to 2022, including what it will look like in the New Year, how it could affect the 2022 tax filing season and whether an extension is likely.

What the child tax credit will look like in 2022

The good news is the child tax credit is not going to go away. But without congressional intervention, the program will revert to its original form in 2022, which is less generous:

  • A credit of $ 2,000 per dependent under the age of 17;
  • Income thresholds of $ 400,000 for married couples and $ 200,000 for all other tax filers (single taxpayers and heads of household); and
  • A 70 percent partial refund affecting people whose tax bill is less than the credit amount.

Will Congress approve more monthly child tax credit payments?

That’s not to say Congress won’t take additional steps to reinstate the $ 1,000 or $ 1,600 top-up and re-send monthly checks to eligible families. For now, however, that hinges on the future of Biden’s Build Back Better plan, which faces the cutting block in the Senate without Manchin’s backing. The November 19 bill was passed by the House of Representatives nearly four days after Biden enacted his $ 1,000 billion infrastructure bill.

“I cannot vote for, and I cannot vote to continue with this bill,” Manchin told Fox News. “I tried everything humanly possible. I can’t do it.

Officials in the Biden administration were shocked by Manchin’s statement, with White House Press Secretary Jen Psaki calling Machin’s remarks a “sudden and inexplicable reversal” of previous talks with key Democratic leaders.

Biden, however, stressed that negotiations between Manchin, House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer will continue, although he added that lawmakers are unlikely to return to the table. show before 2022.

“It takes time to finalize these agreements, prepare the legislative changes and complete all the parliamentary and procedural steps necessary to allow a vote in the Senate,” the president said in a speech on December 16.

The New York Times reported on December 15 that the child tax credit was one of the main reasons Manchin delayed the bill, with lawmakers at odds with extending payments for another year amid concerns about inflation and no work requirements to qualify for checks. Manchin, however, denied the claims later today with reporters on Capitol Hill.

“I’ve always been for child tax credits,” Manchin said. “We have voted for this several times.

Lawmakers hoped to pass the bill by Christmas, so payments could resume in January. This no longer seems possible, with lawmakers now on vacation until the end of the year.

“If households were used to receiving a monthly amount of the child tax credit, they couldn’t predict that that money would come in in January,” said Mark Jaeger, vice president of tax operations at Tax Act. “The kids have been lifted out of poverty with these stimulus payments, and you just worry that families will be back in the same rut because we are pulling the rug out of these payments pretty quickly. “

How the large-scale child tax credit could impact the 2022 tax season

Eligible households will be able to claim the remaining half of the child tax credit to which they are entitled when they file their 2021 income tax return. However, the impact of this extension on you depends on your choice not to receive the child tax credits. six-month advance and your eligibility for extended credit based on your 2021 income.

If you received the monthly credit and were also eligible for the full extension, you might notice that you don’t get as big a CTC on your tax return as you are used to – although it does. or only because you have already received half of it. . Families who used the six monthly advance payments can expect to receive $ 1,800 for each child aged 5 and under and $ 1,500 for each child aged 6 to 17 on their 2021 tax return.

“You don’t want to have that feeling of disappointment when you go to file your taxes, when in all likelihood – because you’ve already claimed half the credit – you could probably see a decrease in your tax refund,” says Jaeger. .

On the other hand, eligible households can expect significant credit if they have opted out of advance payments and are also entitled to the full amount. That would mean they can claim the full credit when they file their 2021 taxes: $ 3,600 per child under 6 and $ 3,000 per child between 6 and 17.

“This is a very nice and big benefit of a refund,” says Mark Steber, senior vice president and chief tax officer at Jackson Hewitt. “You can use it as a safety net until we know what the child tax credit will look like in 2022.”

Will the IRS Require Households to Refund Overpaid Child Tax Credits?

Unlike stimulus checks, the Internal Revenue Service (IRS) will reconcile any overpayment. This means that if your income improved in 2021 or if you claimed fewer dependents in the tax year than the IRS knew, you will need to settle any overpayments with your return. income 2021.

Not all families were eligible for the premium portion of the credit. The incomes of single filers could not exceed $ 75,000, the incomes of heads of households could not exceed $ 112,500, and married couples could not earn more than $ 150,000 to qualify for the $ 1,000 or $ 1,600. additional. After that, the tax break was reduced by $ 50 for every $ 1,000 above the income threshold.

The IRS used the most recent information it had to determine the families’ eligibility. It could have been your 2020 tax return, or other proactive families could have updated their income and family information through one of the agency’s online portals. Others, however, may not have acted, putting them at risk of losing some of their refund – or having to pay back some of that money.

Experts say families will in few circumstances have to worry about repaying these payments, either with their tax refund or out of pocket. The credit had high income thresholds for the base amount of $ 2,000, and the program was also buffered by design, as families only received half of the credit in six monthly installments. Families, however, could potentially run into some trouble if they were to receive money for a dependent they no longer claimed.

“Long story short, with these high phase-out thresholds of $ 400,000 or $ 200,000, it would be a very unusual scenario to have to repay a child tax credit, as long as you still have eligible dependents.” , says Steber. Still, he adds that “there is no free card to get out of jail if you get that money and you’re not supposed to.”

What taxpayers should do next

  • Hope for the best, but plan for the worst: American families should anticipate the possibility, not the likelihood, of these child tax credit payments being extended. That means continuing to get your spending under control, paying off debts, and contributing to an emergency fund – although this is easier said than done, as millions of people face the lingering financial impact of the pandemic.
  • Keep an eye on any IRS communication: The agency will send letters to households in January 2022 that will indicate how much money they received in 2021 through advance payments and help them determine if they received more than they are entitled to.
  • Recover missing payments when you file your 2021 taxes: Americans will have the ability to reconcile all the missing prepayments they were supposed to receive in 2021 by completing what is called a “Form 8812. “
  • Some Americans could still wait for their final payment: If you received your deposit as a paper check, you may still be expecting this money even today. The IRS recommends waiting about four to nine weeks before requesting a payment record.
  • Deposit early and work with a professional: Since 2021 has been another unprecedented fiscal year, experts stress the importance of starting early to ensure you have enough time to find all your documents and get your questions answered. The sooner you submit your 2021 taxes, the sooner you can receive the refunds you are entitled to.

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