The cost of raising a kid is substantial. Large sums of money are frequently spent by parents on their children’s care, medical treatment, food, and clothing.
Legislators realized that raising children would be a financial hardship and enacted a tax credit to assist alleviate that stress. In 2021, the Child Tax Credit received a lot of attention because it was significantly improved as part of the American Rescue Plan.
The maximum amount of the Child Tax Credit increased that year, from $2,000 to $3,000 for children aged 6 to 17, and from $3,600 to $4,400 for children under the age of 6. Also, the credit became entirely refundable, so even taxpayers with zero tax liability may collect the whole amount.
Half of the Child Tax Credit was also distributed in the form of monthly installment payments between July and December of 2021/22. In a period when inflation rates were already rising noticeably, many families were able to avoid getting into debt because of these regular monthly payments.
This beneficial increase to the Child Tax Credit, however, was never extended through the year 2021. The cost of living was high in 2022, and as a consequence, many families had trouble making ends meet. However, what can we expect as parents in the year 2023? Is a Tax Credit for Children planned? Also, how much do you anticipate it will be worth?
Child Tax Credit Extended
There is a widespread belief that the Child Tax Credit will no longer be available for tax returns filed after the 2021 tax year. Actually, the opposite is true. In the absence of sustained improvement, it returned to its previous rules and value.
Accordingly, in 2023, the Kid Tax Credit will exist and it will be valued at up to $2,000 per qualifying child. Even if the credit will not be distributed in monthly installments, people who are entitled to it may still get their money when they complete their tax returns for the year 2023 in year 2024.
It’s important to note that the Child Tax Credit is no longer completely refundable. There is a limit of $1,540 per kid this year for refunds. This implies that the maximum benefit someone may get is $1,540 assuming they do not owe the IRS more than that amount.
Child Tax Credit Is Still In The Picture
There has been no authorized increase to the Child Tax Credit as of January 1, 2023. Legislators are still trying to get one, however. Your kid or dependant must have a valid Social Security number issued by the Social Security Administration in order to be eligible for tax-free status and federal benefits. They need to be under the age of seventeen. Furthermore, the following conditions must be met:
They are your biological or legally adopted kid; your stepchild or foster child; your brother or sister; or your half- or full-brother or half-sister (such as a niece, nephew, or grandchild).
At most, they’ll have to rely on themselves throughout the year for half of their financial support. More than half of the year has passed since they first moved in with you. You may legitimately include them as a dependant on your tax return.
For the given tax year, they do not file a joint return with their spouse, or they do so merely to get a refund of income tax that was withheld or paid in advance. They fit one of three categories: U.S. citizen, U.S. national, or permanent resident. There were adjustments made to both the Child Tax Credit and the Dependent Care Credit for the current tax year.
The federal government implemented a number of temporary tax breaks to aid struggling families during last year’s coronavirus outbreak, but those breaks have already ended. Judy Strauss, an enrolled agent who operates Strauss Tax Services in downtown Chicago, told NBC 5 that many tax breaks for families with children are already at pre-pandemic levels.
Families submitting these claims may get a lesser return than in other years, according to financial and tax experts. Wintrust Wealth Management’s managing director Dan Rahill said, “The child care tax credit, that’s No. 1 on the list during the pandemic in 2021). “For kids under 6, it’s $3,600 and for kids 6-17, it’s $3,000. This year’s allotment for each kid will be a far more reasonable $2,000, reverting to the pre-pandemic standard.”
The credit has to be improved since many people believe that doing so will help families tremendously. Thus, it is probable that legislation may be passed this year that improves the credit, either by raising its maximum value or by enabling the credit to be completely refundable once again.
Installment payments on a monthly basis are still an option. Getting paid on a monthly basis might make it much simpler for families, particularly lower-income households, to manage their costs without resorting to the debt since inflation remains relatively high.
Many low-income families were able to break out of poverty and escape hunger thanks to the increase in the Child Tax Credit in 2021. That’s why it’s premature to dismiss the possibility of better credit in 2023, something lawmakers are well aware of. The Illinois CPA Society recommends that taxpayers compile their 2022 tax records, Social Security numbers, Individual Taxpayer Identification Numbers, and Adoption Taxpayer Identification Numbers in advance of beginning their tax returns.
Victims of tax-related identity theft should also be prepared with their Identity Protection PINs provided by the Internal Revenue Service. Taxpayers who have obtained their number in advance should also have it available before submitting their return.
For some taxpayers, this might entail waiting until mid- to early March to make sure that all income and tax-related paperwork have been received, as noted by the Illinois CPA Society.
The 1099 forms that banks and other payers send out to report unemployment benefits, dividends, retirement, pension, or pension plan distributions, investment, and other earned income are examples.
