The COVID-19 pandemic continues to cause upheaval across the world, in the form of inflation, supply chain interruptions, remote and hybrid work, and overcrowded hospitals. In recent years, the federal government has taken steps to ease the burden on Americans in the form of tax changes, including credits.
In March of 2021, the American Rescue Plan was signed into law by President Biden with the goal of providing financial relief for millions of Americans affected by the fallout from COVID-19. The plan included the third round of stimulus checks as well as expanded tax benefits that families could claim on their 2021 taxes (the taxes filed in 2022) to keep more of their earnings. In the calendar year 2023 (the tax year 2022), however, many of these tax benefits will go back to normal or expire. Before you file your taxes, it’s important to note the highlights of the changes so you know what to expect.
Child Tax Credits. After the legislation was signed, the Child Tax Credit increased from $2,000 to up to $3,600 for each dependent child under six and up to $3,000 for each dependent child ages 6 to 17. (It was also the first time you could claim the Child Tax Credit for a dependent child that was 17.) In addition, for the first time, advance payments were issued for half of the Child Tax Credit for each dependent child. For the tax year 2022, the Child Tax Credit has been scheduled to revert back to normal: $2,000 for the years 2022 to 2025, and dependent children must be under the age of 17.
Tax reporting for payment apps. Earlier this year, freelancers and side-gig people were warned that with the new calendar year, those who are self-employed and receive payments for services processed by third-party providers like Venmo and PayPal would receive a Form 1099-K from the third-party payment providers if amounts processed are more than $600, regardless of the total number of transactions. By December, the Internal Revenue Service (IRS) announced that plans for this are temporarily on hold and 2022 will be considered a “transition” year. It’s reasonable to expect that these changes will be implemented for the tax year 2023.
Childcare Credits. When the ARP was signed, parents and guardians of young children were eligible for a credit up to 50 percent of $8,000 ($4,000) in childcare expenses for one child under 13, an incapacitated spouse or parent, or another dependent so that caregivers could work. The amount was 50 percent of $16,000 in expenses ($8,000) for those with two or more dependents. As of 2023, however, the Child and Dependent Care Credit adjust back to the pre-2021 provision: up to 35 percent of $3,000 ($1,050) of childcare expenses for a dependent child under 13, an incapacitated spouse or parent, or another dependent so caregivers can work or look for work. If you have two or more dependents, the credit will be up to 35 percent of $6,000 in expenses ($2,100).
Earned Income Tax Credit. The 2021 relief legislation temporarily extended eligibility for the EITC for a wider range of filers, allowing taxpayers without kids to qualify if they were over 65 or between the ages of 19-25. As of 2023, however, the EITC reverts to pre-2021 rules: eligible taxpayers with no children who received roughly $1,500 in 2021 will now get $500 in 2022
If you have questions about how tax changes for 2022/2023 will affect your taxes, consult with a professional tax services provider.
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