The expanded child tax credit is one of the most successful anti-poverty in history, according to data from the US Census.
However, the government could not extend it past 2021.
In 2022, though, the child tax credit returned, and in its 2023 tax law changes, the IRS decreased the child tax credit.
How Much is The 2023 Child Tax Credit?
The IRS reverted the maximum tax credit per child to its pre-expansion level of $2000 for the 2023 tax year. Initially, the child tax credit was $3600 for children five years and below and $3000 for children aged 6 to 17.
The reversion will have far-reaching impacts on families with several children relying on this large credit.
How Much is The 2023 Child Tax Credit?
The IRS reverted the maximum tax credit per child to its pre-expansion level of $2000 for the 2023 tax year. Initially, the child tax credit was $3600 for children five years and below and $3000 for children aged 6 to 17.
The reversion will have far-reaching impacts on families with several children relying on this large credit.
Who Qualifies for The 2023 Child Tax Credit?
People eligible for child tax credits didn’t change. To be eligible, you and your family must meet the following requirements:
- You must have a modified adjusted gross income of $200,000 or less or $400,000 or less if you’re filing jointly.
- The child you’re claiming the credit for must be under 17.
- You must have a valid Socia Security Number.
- The child must be legally yours, your stepchild, foster child, sibling, half-brother or half-sister, or a descendant of these categories.
- You must have contributed no more than half of the child’s financial support in the relevant tax year.
- You should claim the child as a dependent on your tax return.
- You must be a US citizen or resident alien.
If your modified adjusted gross income exceeds the income limit, the child tax credit you receive will decrease by $50 for every $1,000 above the limit. For instance, a gross income of $201,000 as an individual will let you claim $1,950 for each eligible child.
The Reduced Child Tax Credit Mean Increased Tax Liability to Parents and Families
The child tax credit reduces the taxes you owe the IRS as a parent with dependent children. The 2023 tax changes reduce the tax credit from $3,600 per child to $2,000, which can result in financial strain for families struggling to make the end meet.
For instance, a family with less disposable income might have to cut back on spending to pay the increased tax.
How Can You Mitigate the Impact of Reduced Tax Credit
There are several measures you can take to mitigate the impact of the reduced child tax credit, including:
- Looking for other tax credits: While the child tax credit is important, you can leverage other available tax credits to ease your tax burden. For instance, you can leverage the Earned Income Tax Credit that targets low-to-moderate-income earners. Alternatively, you can go for The Child and Dependent Care Credit.
- Cutting expenses: Reduced child tax credit leaves you with less disposable income. You can find areas to trim in your budget to meet your tax obligations.
- Adjusting your tax withholding: If you’re an employee, you can adjust your tax withholding to account for the reduced child tax credit. Ask your employer to withhold more taxes from each paycheck.
