The past few years have looked different when it comes to tax season due to the pandemic and how it impacted the economy. Between 2020 and 2022, the government put many financial incentives in place to help support American families in surviving the pandemic’s negative effects. Filing in 2023 won’t come with as many stimulus checks, credits, extensions without penalty, and more, as in the previous few years. You should be aware of the changes and what you should expect for this tax season.
Many Families Can Expect a Low Tax Refund for the Child Tax Credit
Most families will receive a lower tax refund due to some changes in tax credits, like the child tax credit. Don’t be surprised when your refund is smaller than you planned, or if you even need to pay taxes. Let’s learn more about the child tax credit, who is eligible to claim it, how the refund works, and what has changed this year so that you can plan for all tax situations. We will also tell you how we can help you navigate the child tax credit and tax filing this 2023 season!
What is the Child Tax Credit?
The Child Tax Credit is a credit that taxpayers with dependents can claim on their tax returns to help offset the costs of raising a child. There is an amount pre-determined by the government for each child that can be deducted from any taxes owed to the government. Its sole purpose is to ease the tax burden on families, especially since raising kids is expensive as it is, and inflation has made it no easier. However, let’s find out more information about this tax credit and who is eligible.
Who is Eligible for the Child Tax Credit?
In order to claim the child tax credit, you have to claim dependent children under the age of 17 on your return. The children also need to have a valid social security number. Furthermore, the IRS has more restrictions on who can be claimed as dependent on your returns, including address, income, age, and more.
What Amount is Refundable?
You can receive a credit of $2,000 for each qualified child you list as a dependent on your tax return. There are income limitations on this credit – the more money you make based on your filing status, the less money you may receive. Tax credits are not taxable income, so be sure you don’t report this credit as income. You will likely have to file your 1040 with additional information to support proof of your dependents.
While this number may sound great for those of you first-time parents, the credit did decrease this year from last.
What Has Changed This Year from Last Year?
As previously mentioned, the Child Tax Credit was one major financial change during the pandemic tax filing season. The credit was upped to $3,000 for children ages 6-17 and $3600 for children ages six and under. These numbers were also subject to income limitations but were much more relief than the $2000.
Just be aware that the numbers have changed to save yourself from major sticker shock on what you could end up owing after filing this year. However, just because the numbers have gone down doesn’t mean there aren’t other tax credits available.
What Other Tax Credits Should Families Ask About?
Tax credits can be a great way to reduce your taxable income so that you owe less and possibly receive a higher refund. What tax credits can you and your family apply for, and do you qualify? Let’s take a look:
- Earned income tax credit – The earned income tax credit is for low-income families that have to meet a certain threshold to claim this one. Double-check your eligibility so you don’t miss out on this credit.
- Electric vehicle tax credit – Purchasing an environmentally friendly car also qualifies for a credit! This credit can be claimed for up to $7,500 for electric cars purchased in 2022 and 2023. The vehicle has to qualify, according to what the IRS defines. You can also claim this credit for qualifying cars bought before 2022, but you will have to amend the return from the year it was purchased.
- Dependent care credit – The dependent care credit was also designed to ease parenting costs on families, this time for daycare and other related expenses. You can claim up to $2,100 for this credit even if you don’t owe tax!
- Education credit – If you are paying for education-related expenses or enrolled in higher education, you may qualify to claim the education credit.
- Adoption credit – Lastly, the adoption credit! You may qualify for this one if you paid adoption, travel, or legal fees related to the adoption of a dependent.
Always be on the lookout for tax breaks and use tax professionals when you are unsure or have questions.
Waters Hardy Can Help Maximize Your Credits and Refunds!
Tax preparation services can be your best tax preparation and filing solution. Here at Waters Hardy, our team of tax experts can help you with personal or business accounting services and tax preparation. Also, we will answer any questions you might have. We will work to find all tax breaks and credits so that we can maximize your returns for refunds or minimal money owed.
We also ensure you have all the necessary paperwork to file. You owe it to yourself to make your tax filing process easy. Our team of tax experts will guide you every step of the way to make this tax season efficient and simple.
The tax deadline (April 18, 2023) is quickly approaching, so contact us now to get started.