Introduction

The federal government created the Child Tax Credit to assist American taxpayers who are experiencing financial hardship and have dependent children. However, the proposal benefits parents and small enterprises that profit from loan expansions.

The American Rescue Plan Act, introduced in 1997, extended the plan until early 2021 to deliver the required funding to families. Consequently, from July 2021, parents with children under 18 who earn less than a set amount will get money for each child. Furthermore, they will get the same sums at the same time every month from then on.

The Child Tax Credit for the 2020 tax year varies from the one for 2021. The credit will return to the standards in place for 2020 in 2022, with minor inflation adjustments. The revisions to the American Rescue Plan for 2021 are exclusive to that year.

Eligibility for Child Tax Credit

To be eligible for the Child Tax Benefit, you must submit the name and Social Security number of each dependent for whom you are claiming the credit. Please do not mix this with the child tax credit regulation for 2021, when ARP loosened some criteria.

The eligibility criteria for the year 2022 (filing April 2023) are as follows:

• You cannot claim the child tax credit for a kid who is not a United States citizen, national, or resident alien. As a result, the kid must get a Social Security Number (SSN) from the Social Security Administration.
• The SSN for each kid you claim CTC must be included in the tax form.
• You and the child’s son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them (for example, your grandchild, niece, or nephew) must have any of the ties listed below.
• By the end of 2022, the youngster should not be 17 years old.
• The child must reside with you for at least half of the calendar year 2022 (January to December 2022) and must not bear more than half the cost of their maintenance in 2022.
• The child must be claimed as a dependant on your tax return.
• For the tax year, the kid does not file a joint return (or files it only to claim a refund of withheld income tax or estimated tax paid)

Tax Credit for Adoption

Adopters or those who begin the adoption process in 2021 may be eligible for the adoption credit. This credit is available for international, domestic private, and public foster care adoptions. However, this credit is not available to taxpayers who adopt their spouse’s child.

The following is some basic information to assist you in understanding this credit. It will also help in determining if you are eligible to claim it when filing your taxes:

• Taxpayers may claim a maximum adoption credit of $14,890 per qualified child on their 2022 tax return. And $15,950 per child for their 2023 tax return.
• There are income constraints that may impact the credit amount.
• Schedule 8812 (Form 1040) should be used to calculate child tax credits. Furthermore, record any advance child tax credit payments you got. Also, calculate any extra tax payable if you received an excess of advance child tax credit payments.
• Form 8839, Qualified Adoption Expenses, should be completed by taxpayers. This form determines how much credit someone may claim on their tax return.
• A child must be under the age of 18 to be eligible. But if the adopted individual is elderly, they must be physically incapable of caring for themselves.
• Adoption costs that are reasonable and necessary are examples of qualified expenditures.
• Legal expenses and court charges.
• Meals and housing are examples of adoption-related travel expenditures.
• Other costs are directly associated with the legal adoption of a qualified child.

Daycare Tax Credit

The child and dependent care tax credit (CDCTC) gives a refundable credit of up to 50% of childcare expenditures for a child under the age of 13 or any dependent who is physically or mentally incapable of caring for themselves.

Eligible childcare costs are capped at $8,000 per dependent (up to $16,000 for two or more children). Furthermore, the credit will be nonrefundable after 2021. Additionally, the maximum credit rate will reset to 35%.

Family Tax Credit

The Lifetime Learning Credit can help you pay for any number of years of higher education. Whether or not you are trying to get a degree.

For an eligible person, spouse, or dependent, the tax credit is 20% of up to $10,000 in eligible school costs, or $2,000. Single filers with an annual income of $80,000 or less or married couples filing jointly with a yearly revenue of $160,000 or less will be able to claim the full credit for 2022.

Dependent Care Credit

The Child and Dependent Tax Credit is a federal tax credit that helps families pay for child care so that both parents can work or look for work. Families who have to pay for care for a disabled spouse, an adult dependent, or other dependents may also be able to get the credit.

Bottom Line

If you are entitled to claim the Child Tax Credit on past year returns but did not, you may still be able to do so in certain circumstances. Submitting an updated tax return can claim this credit on prior-year returns.

Allow GJM & Co. to handle your taxes from start to end. Our GJM accountants will not only help you with tax filings but also explain these credits and other finance-related queries.

For any queries or need consultation, Schedule a Call today or write to us at info@gjmco.in.