Editor’s note: See related video above for five things to know about the IRS’s changes to taxes
(NEXSTAR) – If inflation wasn’t bad enough, it’s shaping up to be a year of disappointing tax refunds for many people, perhaps especially for parents.
Among the changes this year are sizable reductions to two tax credits that gave parents a financial boost on their refunds during the pandemic but are now being rolled back to previous levels.
The child and dependent care credit, designed to help working parents pay for child care, was raised to a maximum of $4,000 for one qualifying individual, and $8,000 for two. As a refundable credit, you could still get the credit even if you didn’t owe any tax or have any income to report.
Unfortunately for parents, the expanded credit, instituted as part of the American Rescue Plan Act of 2021, has been reduced to a nonrefundable maximum of $1,050 for one qualifying person, and $2,100 for two.
Another boon for parents last year, the child tax credit, has fallen back to $2,000 for children regardless of age. For 2021 filers, the credit was $3,600 for children under the age of 6 and $3,000 for those between the ages of 6 and 17.
“An example would be, say, a parent who’s self-employed, whether they have a traditional style business or are part of the gig economy, if those taxpayers are not making estimated tax payments they’re generally going to get hit with a tax bill at the end of the year,” San Diego-based tax attorney Adam Brewer told Nexstar. “A lot of times, if they have kids, that can kind of buffer that, it gives them the additional credits to take care of the balance, but now with less credits, there are going to be taxpayers that find themselves owing more than anticipated.”
Credits, perks to remember while filing
Worried about the size of your refund this year? There are a few strategies that may be applicable to your situation and shouldn’t be overlooked.
If you purchased a qualifying electric vehicle in 2022 or 2023, the new version of the EV tax credit maxes out at $7,500. Vehicles bought before 2022 can still be claimed under the old credit if you file an amended tax return for the year of purchase.
The adoption tax credit provides up to $14,890 in eligible expenses for parents who were in the adoption process during 2022. Eligibility requirements say the child must be “under the age of 18 or physically or mentally incapable of caring for themself.”
If you qualify to file as head of household, this may be another way to improve your 2022 refund. Heads of household generally enjoy a higher standard deduction and lower tax rates. You can file as long as:
- You’re unmarried or considered unmarried at the end of 2022
- You paid at least half the cost of upkeep for the household.
- You had a qualifying person living with you in the home for more than half the year. See the IRS website for more details.
Lastly, Instead of spending money on a pricey tax accountant, you can also take advantage of IRS Free File, as long as you earned $73,000 or less in 2022.
The tax season officially began on January 23; the filing deadline is April 18.