Changes in Child Tax Credit and Dependent Care credit
At the end of one more hectic tax season, it is time to reflect and write about some of the new changes.
Child Tax Credit:
The Child Tax Credit had increased to $ 3,600 per child below the age of six and $3,000 for children aged between 6 and 17 years for the tax year 2021.
This credit is expected to once again revert to $ 2,000 per child for the tax year 2022.
The department had sent advance payments to eligible taxpayers toward the latter half of 2021.
The maximum credit is only available to married taxpayers whose income does not exceed $150,000 or single taxpayers whose income does not exceed $75,000. If your income exceeds that amount then the child tax credit is subject to a phase-out. The first phase-out can reduce the child tax credit to $2,000 per eligible child.
The 2nd phase out is for taxpayers earning more than $400,000 for married filing jointly or $200,000 for single taxpayers. This further reduces the child tax credit from $2,000 to zero dollars for married couples making more than $ 438,000.
Some persons who earned significantly higher income in the Year 2021 compared to the Year 2020 may have to refund the Advance Child Tax Credit received by them from IRS.
Dependent care credit:
The maximum dependent care credit has been raised to $4,000 for one child and a max of $8,000 for two children.
The max credit is 50% of the eligible expenses incurred for the child.
Married taxpayers filing jointly can get the maximum benefit up to an income of $150,000. This credit starts to reduce from 50% to 20% for taxpayers earning up to $183,000.
It stays at 20% for taxpayers earning less than $400,000. It starts to phase out after $400,000 and reduces to zero for taxpayers making more than $ 438,000