Why parents may see a smaller tax return this year

(NEXSTAR) – If inflation weren’t bad enough, this is shaping up to be a year of disappointing tax refunds for many people, perhaps especially parents.

Among this year’s changes are significant cuts to two tax credits that gave parents a financial boost on their repayments during the pandemic, but are now being rolled back to previous levels.

The Child and Dependent Credit, designed to help working parents with child care costs, has been increased to a maximum of $4,000 for one eligible person and $8,000 for two. As a refundable credit, you could still get the credit even if you owed no tax or had no income to report.

Unfortunately for parents, the expanded credit, instituted under the American Rescue Plan Act of 2021, has been reduced to a non-refundable maximum of $1,050 for one eligible person and $2,100 for two.

Another boon for parents last year was the Child Tax Credit, which dropped to $2,000 for children of all ages. For 2021 filers, the credit was $3,600 for children under age 6 and $3,000 for those ages 6 to 17.

“An example would be, say, a parent who is self-employed, whether they have a traditional-style business or are part of the gig economy, if those taxpayers don’t pay estimated taxes, they’ll usually be hit with a tax bill at the end of the year,” San Diego-based tax attorney Adam Brewer told Nexstar. it gives them the extra credits to take care of the balance, but now with less credits, there will be taxpayers who will owe more than expected.”

Credits, benefits to remember when filing

Worried about your refund amount this year? There are a few strategies that may apply to your situation and should not be overlooked.

If you purchased an eligible electric vehicle in 2022 or 2023, the new version of the EV tax credit is capped at $7,500. Vehicles purchased 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 of eligible expenses to parents who were in the adoption process in 2022. Eligibility requirements state that the child must be “under the age of 18 or physically or mentally incapable of caring for himself”.

If you qualify to file as a head of household, this may be another way to improve your 2022 refund. Heads of household generally get a higher standard deduction and lower tax rates . You can deposit as long as:

  • You are single or considered single at the end of 2022
  • You have paid at least half of the household maintenance fee.
  • You had an eligible person living with you in the home for more than half the year. Check the IRS website for more details.

Finally, instead of spending money on an expensive tax accountant, you can also take advantage of the IRS Free File, as long as you earned $73,000 or less in 2022.

Tax season officially started on January 23; the deadline for filing is April 18.

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