How Might the Reduced Child Tax Credit for 2022 Affect You?

You may or may not notice a big difference on your bottom line this year due to the decrease of the child tax credit, which has been reduced to the pre-2021 amount of 2,000 per dependent child. The 2000 credit applies to qualifying dependent children under age 17. In the prior year, the credit amounts were up to 3600 per child under age 6 and 3000 per child ages 6-17. The impact this will have on reducing your 2022 tax refund (or increasing your balance due) will depend on whether or not you took advantage of the 2021 advanced child tax credit payments.

For example, if you received advance payments for one 5 year old dependent in 2021, you would have received a total of 1,800 prior to claiming the credit on your tax return (half of the total 3600 credit for that child). When you filed your 2021 return, the 3,600 credit was reduced by the 1800 you had already received, leaving you with a balance of an 1800 credit on your tax return. Since there were no advanced payments in 2022, you will claim a 2,000 credit for that same child on your 2022 return. With this example, you will technically be receiving a credit of 200 more on your tax return.

Now let's say you opted out of the advanced payments for your 5 year old child, choosing to claim the full 3,600 credit while filing your 2021 tax return. With this scenario, being that the 2022 credit has been reduced to 2,000, this credit on your 2022 tax return will be 1,600 less than in the prior year. With this example, there will be a significant difference between your refund or balance due on your 2022 tax return vs 2021. This is also the case for anyone that added a dependent on their 2021 return, as advanced payments were not received and the full credit amount had been included on the tax return.

Lower income filers will be affected by the reduction to the refundable portion of the credit. If you did not have income, or your tax was lower than the credit amount on your 2021 return, then the entire child tax credit was refunded to you. For 2022, the maximum refundable amount of the credit is 1500, and may be lower depending upon your income. Filers without earned income are not eligible for the refundable credit as they were in the prior year.

For dependents 17 and older, the 2022 credit amount is 500. Unfortunately, those of you that had a child turn 17 in 2022, you will feel the 2500 difference (not in your favor), when you figure your 2022 taxes.

Obviously, the more dependents you claimed on your 2021 return, the more significant the impact may be on your 2022 return with respect to your bottom line.