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Millions of American families received an increased child tax credit in 2021 to offset the pandemic’s economic impact — but parents can expect a smaller tax break for their dependents this year.
In 2021, parents were eligible to receive up to $3,600 for each child under six and $3,000 for other children, including 17-year-olds. Those enhancements have since expired, and the program has reverted to its original form in 2023, which is less generous at $2,000 per dependent under age 17.
“The biggest change from 2021 to 2022 is a lot of special one-year provisions expired,” said tax advisor Lisa Niser. “For the child tax credit, there are no advanced payments and the amounts returned to 2020 levels. That’s a huge difference for a lot of people.”
Here’s what you need to know about the child tax credit and how it could affect the 2023 tax-filing season.
How the child tax credit will look in 2023
The child tax credit isn’t going away, but it has returned to its previous levels. There are a handful of requirements that you — and your kids — must meet before the IRS will let you claim the tax credit, such as:
- Income thresholds of $400,000 for married couples and $200,000 for all other filers (single taxpayers and heads of households). Your credit amount is reduced by $50 for each $1,000 of income exceeding the threshold.
- Each qualifying child must be United States citizen or resident alien and have a valid Social Security number.
- The child is a legally recognized child, stepchild, foster child, sibling, half-brother or half-sister or a descendant of one of these categories (such as a grandchild, niece or nephew).
- You provided at least half of the child’s financial support in the last year.
- The qualifying child lived with you for over half the year.
- You must claim the child as a dependent on your tax return.
Will Congress approve more monthly child tax credit payments?
Democratic lawmakers hoped to expand the child tax credit beyond the 2021 tax year, touting that it significantly reduced child poverty in the U.S. But the proposal didn’t pass before Congress adjourned at the end of 2022, which meant the credit reverted to $2,000 per eligible child for the 2022 tax year and would not be paid out in advance monthly installments.
That’s not to say Congress won’t take additional action in the future to reinstate the $1,000 or $1,600 top-up for the child tax credit. President Joe Biden called on Congress to bring back the expanded child tax credit in his State of the Union address.
“Let’s restore the full child tax credit — which gave tens of millions of parents some breathing room and cut child poverty in half to the lowest level in history,” Biden said in his State of the Union address.
How the scaled-down child tax credit could impact the 2023 tax filing season
The child tax credit is one of several tax credits that has reverted to its pre-COVID standards.
It’s partly why the IRS has warned taxpayers that refunds will likely be “significantly smaller” this year. Experts say that less generous tax breaks from the pandemic, including the expanded child tax credit, earned income tax credit and no stimulus checks, translate to lower refunds.
“People may get a smaller refund this year because there aren’t all these enhanced benefits, like the advanced child tax credit and stimulus payments,” Niser said.
More than 28 million tax returns were already processed, and the average refund stands at $1,997 as of Feb. 11, 14 percent lower than the same time last year. Though, that figure will likely change as the tax season progresses and more people file their taxes.
What to know about the additional child tax credit
If you break even on your taxes, you may still be able to claim the additional child tax credit. This portion of the child tax credit allows you to receive up to $1,500 per child as a refund — even after your tax bill is reduced to zero. For example: Tim and Martha are a couple with a kid and qualify for a total child tax credit of $2,000. However, their tax bill is only $1,000. That’s where the additional child tax credit comes in. With it, Tim and Martha might be able to get all or some of that credit back as a refund. The IRS began distributing refunds that include the earned income tax credit and additional child tax credit in mid-February.
How to claim the child tax credit
If you’re a parent who meets the qualifications, you can claim the child tax credit — and the additional child tax credit (if applicable) — by entering your eligible children on your Form 1040. You’ll also need to complete Schedule 8812 to figure your child tax credit amount and include it in your tax return. The IRS has a step-by-step instructions on how to fill out Schedule 8812.
What taxpayers should do next
- Check if you qualify for the child tax credit: The temporary enhanced provisions for the child tax credit no longer apply, so verify the 2022 requirements to see if you qualify for it this tax season.
- Plan for smaller refunds: Families should plan for their tax refunds to be smaller this year because of the scaled-down tax credits. If you get a refund, tax experts recommend using it to pay down debt and build emergency savings.
- See if your state is offering a state child tax credit: A dozen states — California, Colorado, Connecticut, Idaho, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oklahoma and Vermont — are offering their version of the child tax credit, according to the National Conference of State Legislatures. And nine of the 12 states — including California, Colorado, Connecticut, Maryland, Massachusetts, New Jersey, New Mexico, New York and Vermont — have made their child tax credit refundable. Eligibility and benefits vary among states, so check with your state government website for details.
- Recover missing payments: If you didn’t file a tax return to get the second half of your credit in 2021, it’s not too late. You can reconcile any missing advance payments that they were supposed to receive in 2021 by filling out a Schedule 8812.
- File early, and work with a professional: Experts stress the importance of starting early to make sure you have ample time to track down all your documents and get your questions answered. The sooner you submit your 2022 taxes, the sooner you’ll be able to receive any refunds you’re eligible for.