Parents may be in for a shock this tax season. A lot of the tax breaks parents could get for children went up during the pandemic, but now they’re going back down. That could mean a much smaller refund.
CHILD TAX CREDIT
Before the pandemic: $2,000 for each child 17 years old and younger (subject to some limitations such as income).
During the pandemic: $3,000 for each child 6-17 and $3,600 for each child under 6 (also subject to limitations).
Now, it is reverting back to the way it was pre-pandemic to the $2,000 level.
DEPENDENT CARE CREDIT
Last year, you could get as much as $8,000 for daycare.
Now, the maximum is $2,100.
“You could be in for a significant refund shock,” said Mark Steber of Jackson Hewitt.
He reminds you this could be even more jarring because these aren’t tax deductions, these are tax credits.
“Deductions reduce taxable income. The holy grail, on the other hand of tax benefits, are tax credits. They are a dollar-for-dollar benefit on your tax return. A $1,000 credit is worth $1,000,” Steber said.
Mallory Renegar and her husband had a daughter during the pandemic, Magnolia Louise Renegar. “She is exciting and the light of our lives, but the hardest thing we’ve ever done,” she told Action 9′s Jason Stoogenke. “My child picks up every sickness known to man apparently, and doctor bills are expensive. So, my husband and I were really banking on that tax credit to offset some of our doctor bills.”
Renegar isn’t just a parent, she works for the Iredell County Partnership for Young Children, a nonprofit Smart Start affiliate and resource for parents.
She’s helping other families navigate the tax changes as well. “They’re really going to struggle this year once the tax rolls around and they find out, or they receive that check and it’s a lot, significantly a lot less than what they initially thought it would be,” she said.
Stoogenke offers this advice:
- You may want a tax pro to help.
- Remember not to claim these tax credits as income. You don’t have to pay taxes on them.
- Since they are going down, look for other deductions or credits you qualify for.
- Make sure you know who qualifies for the tax credits. In most families, it’s obvious (mom and dad), but it can get tricky in divorced families or if the grandparents take care of the kids. (See below.)
Who qualifies for the child tax credit?
- Relationship Test: Your qualifying child must be your son, daughter, stepchild, adopted child, eligible foster child, grandchild, great-grandchild, sibling/half-sibling/stepsibling, nephew, or niece.
- Residency Test: Your qualifying child must have the same main home as you for more than half the year.
- Support Test: The qualifying child must not provide more than half his/her own credit.
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