 Income Tax 2022-2023. Credits for qualifying children and other dependents. General Instructions. Let's do some wealth preservation with some tax preparation. Most of this information comes from Instructions for Schedule 8812. Credits for qualifying children and other dependents. In this tax year 2022, you can find on the IRS website, irs.gov, irs.gov, looking at the income tax formula. We're down at the bottom where the credits are located. Remembering, the first half of the income tax formula is in essence an income statement, although a strange one. The bottom of it resulting in taxable income, similar to net income for an income statement. We use that to calculate the tax before credits or other taxes, not by multiplying by one rate, but by using the progressive tax system. And then we have to deal with the credits and other taxes, like self-employment tax and the payments that we have made either through withholdings or estimated tax payments to get to the tax refund or tax due bottom line. Remember, the credits are similar to deductions in that we like them both. However, if we could choose between $1 of credit and $1 of deduction, we typically want the $1 of credit because we get the full benefit for the $1 of credit. Whereas a $1 deduction would simply be reducing the taxable income by that dollar and the benefit would be dependent on our tax rate. Remember that in terms of the Form 1040, we're looking at Page 2 of the Form 1040. Page 1 deals with the basic weird income statement of the income tax formula to get to the taxable income. Page 2 deals with the credits and the payments where we might have many credits, including this one, a refundable portion and a non-refundable portion. Support Accounting Instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. We have one kind of credit category that's now basically being broken out into two places on the tax return because of this concept of it being refundable and part of it being non-refundable. The non-refundable part means that it can't take the tax liability below zero. If it does, you'll basically lose the credit for anything that goes past that point. The refundable portion giving you a benefit even if the tax liability goes below zero. Alright, General Instructions, Taxpayer Identification Number Requirements. You must have a TIN by the due date of your return. So if you or your spouse is filing jointly, do not have an SSN Social Security Number or I-10 issued on or before the due date of your 2022 return including extensions. You cannot claim the CTC Child Tax Credit, ODC Other Dependent Credit or ACTC. Additional Child Tax Credit on either your original or amended 2022 return. If you apply for an I-10 on or before the due date of your 2022 return including extensions and the IRS issued you an I-10 as a result of the application, the IRS will consider your I-10 as issued on or before the due date of your return. Quite considerate of them. So how much is the 2022 Child Tax Credit? So for the 2022 tax year, the CTC Child Tax Credit is worth $2,000 per qualifying dependent child. If your modified adjusted gross income is $400,000 or below married filing jointly or $200,000 or below all other filers. If your MAGI, remember when we think about these phaseouts, it usually starts with the AGI which is your adjusted gross income. The M is the modified adjusted gross income. So if your MAGI exceeds those limits, your credit amount will be reduced by $50 for each 1000 of income exceeding the threshold until it is eliminated. So when you're discussing the Child Tax Credit with people, you can basically give the general concepts $2,000. It changed substantially in 2021. It's basically reverting back to its original format after the crisis and whatever the reason was for the adjustment in 2022. And then there's going to be an income limit that's fairly, it's a fairly high income limit. And then oftentimes you'll be able to say, look, it phases out once you get past that limit. And you probably don't need to actually know exactly what the phaseout is in your mind. Possibly depending on the software to do that, because your job might be to discuss this, visualize this plan for this and so on so that you can talk to people and make projections. And then when you get down to the nitty gritty of doing the actual phaseout, you can have the software help you out with that process. So there is that. So the CTC is also partially refundable tax credit. That is it can reduce your tax bill on a dollar for dollar basis. And you might be able to apply for a tax refund of up to $1,500 for anything left over. So in other words, the refundable portion and the non refundable portion, the non refundable portion means most credits. The concept is this is a tax. So we're talking about federal income taxes. So it shouldn't be the case you would think for a credit to result in the liability going below zero and you still getting money from the credit when you don't owe any taxes, right? That would be so that wouldn't be a tax. But we can use the tax code as like a benefit program and not just for taxes, which is in essence what's being done with the refundable portion of the credit, allowing people still to get a quote refund in quote, which isn't really a refund. It's a benefit program at that point because it's not really taxes because you're getting a refund on on the refundable part. And that's why it gets a little bit messy on the second page of the tax return. Because now we've got to think about, well, how are we going to do that logistically calculating the non refundable portion that can't takes the liability below zero. And then the refundable portion, which can the refundable portion acting kind of like a payment. In essence, like it meaning you're going to get a dollar for dollar benefit generally from it, even if your tax liability goes to zero or pass zero. So this partial refund portion is called the additional child tax credit by the IRS. That's why we have these two terms. So when you normally talk to people, you say, yeah, it's the CTC is the child tax credit 2000, whatever. And then when you get into the refundable portion, you most people probably still say CTC child tax credit. But the additional child tax credit is what's being referred to when we get to this to this refundable portion that you're breaking out in these two categories. Okay, each qualifying child must use the CTC or a CTC child tax credit credit additional child tax credit must have the required social security number. So if you have a qualifying child who does not have a required SSN social security number, you cannot use the child to claim the CTC child tax credit or additional child tax credit on either your original or amended 2022 return. The required SSN social security number is one that is valid for employment and is issued before the due date of your 2022 return, including extensions. If your qualifying child was born and died in 2022, and you do not have an SSN for the child, attach a copy of the child's birth certificate, death certificate, or hospital records, the document must show the child was born alive. So each dependent you use for the ODC, other dependent credit much must have a TIN by the due date of your return. So when we think about the credits that are going to be taken here, generally the thought process would be, could you get the child tax credit? If you cannot get the child tax credit, could you get the other dependent credit? And this is where it kind of ties into the idea of a dependent. Normally, of course, when you're thinking about a dependent, someone that you're going to put on your return as a dependent, you are getting a benefit from that. Primarily the first thing that comes to mind would be the child tax credit if they qualify for the child tax credit. But if they don't qualify for the child tax credit, then you may be able to get the other dependent credit. And therefore these two credits are kind of linked together because they're basically attached to someone who might qualify as a dependent. So we have a similar kind of requirement. You got to have the TIN by the due date of the return for the other dependent credits. So if you have a dependent who does not have an SSN, Social Security Number, I-10 or A-10 issued on or before the due date of your 2022 return, including the extensions, you cannot use that dependent to claim the ODC on either your original or amended 2022 return. If you apply for an I-10 or A-10 for the dependent on or before the due date of your 2022 return, including the extensions and the IRS issues an I-10 or A-10 as a result of the application, the IRS will consider the I-10 or A-10 as issued on or before the due date of your return. Form 8862 may be required. So if your CTC child tax credit, refundable or non-refundable depending on the tax year, A-CTC additional child credit or ODC other dependent credit for a year after 2015 was denied or reduced for any reason other than a math or clerical error, you must attach Form 8862 to your tax return to claim the CTC child tax credit, A-CTC other child tax credit or the ODC other dependent credit unless an exception applies. So you can see Form 8862 information to claim certain credits after disallowance and its instructions for more information including whether an exemption applies. So effect of credit on welfare benefits. This is always kind of an issue when you deal with these kind of programs where you're going to get something that kind of looks like income or you have multiple different kind of welfare programs. Then the question is well if I have income from this other source is that going to mess up my other kind of income sources that I have set up and note this is obviously one of the problems with the benefit or welfare kind of programs or incentive programs. Oftentimes they actually incentivize people to not be able to work or not to go into work because if they were to get some income they would lose a lot of benefits. They might lose more benefits than the income that could actually be made. One of the ideas to kind of combat that was the Earned Income Tax Credit where you actually have to have some earned income. The idea being that it would incentivize people to get some earned income and get back into the workforce. But many of the credits and whatnot are not set up ideally so you have these kind of issues with one system having an effect on another benefit program and so on. So that's what we have here. Any refunds you received as a result of taking the ACTC additional child tax credit cannot be counted as income when determining you or anyone else is eligible for benefits or assistance or how much you or anyone else can receive under any federal program or under any state or local program finance in whole or in part with federal funds. So typically that's usually a good thing for the people that might be getting funds from these other benefit programs which you would think would have a limit depending on your income level and therefore you would like to like reporting taxes. You would like to have the actual income but it'd be exempt from having to be reported because having income would be bad for most of these taxes and these welfare kind of program systems to be able to participate in them. So these programs include temporary assistance for needy families that's the TANF, Medicaid, Supplemental Security Income SSI and Supplemental Nutrition Assistance Program, formally food stamps. In addition, when determining eligibility the refund cannot be counted as a resource for at least 12 months after you receive it. Check with your local benefit coordinator to find out if your refund will affect your benefits. Okay so then we got credits for qualifying children. The CTC additional child tax credit and AC, I'm sorry the CTC child tax credit and ACTC additional child tax credit are credits for individuals who claim a child as a dependent if the child meets certain conditions. So again the general idea here, we have a dependent. The question is what's going to be the benefit from taxes of the dependent. Usually the child tax credit would be the biggest benefit if not then we move on to the other dependent credit. Okay so to claim a child for the CTC and ACTC the child must be your dependent under age 17 at the end of 2022 and meet all the conditions in step one through three who qualifies as your dependent in your instructions for form 1040. So this kind of dovetails into the discussion of who qualifies as a dependent because one of the major benefits of qualifying as a dependent could be the child tax credit. So example your child turns 17 on December 30th 2022 and is a citizen of the United States and claimed as a dependent on your return. You cannot use the child to claim the CTC child tax credit or ACTC additional child tax credit because the child was not under age 17 at the end of 2022. For each qualifying child for whom you are claiming the CTC or ACTC you must check the quote child tax credit in quote box in column four of the dependent section on page one of form 1040. So that page one is where you're going to put basically your dependent so you've got yourself your social security numbers everybody's information all your personal information on page one of the form 1040 they want it right up front there including the dependence and then you check off if they qualify for the child tax credit the actual calculation of the child tax credit being on the second page of the form 1040 which we'll take a look at in the future with some examples. Adopted child and adopted child is always treated as your own child and adopted child includes a child lawfully placed with you for legal adoption. Credit for other dependents this is the ODC so remember the strategy here we have a dependent they qualify as a dependent possibly then the question is well are they qualifying for the child tax credit if not then other dependent credit much less but still beneficial so the ODC is for individuals with a dependent who meets the following conditions one the person is claimed as a dependent on your return so that goes into the instructions for being a dependent again to determine if an individual is your dependent begin with step one under who qualifies as your dependent in the instructions for form 1040 which you can find on the IRS website two the person cannot be used by you to claim the CTC or ACTC so in other words you have this dependent you can't claim the CTC or ACTC the child tax credit or just additional child tax credits because if you could you would do that because it would be more so if you can't do that then that's one of the restrictions because you're not being able to do that that's why you're going to take the ODC other dependent credit so C credits for qualifying children earlier for that one three the person was a US citizen US national or US resident alien for more information see publication 519 if the person is your adopted child see adopted child later example two your siblings 10 year old child B lives in Mexico and qualifies as your dependent B is not a US citizen US national or US resident alien you cannot use B to claim the ODC other dependent credit for each dependent for whom you are claiming the ODC other dependent credit you must check the quote credit for other dependence in quote box in column four of the dependent section on page one of form 1040 or form 1040 SR for the dependent in other words you have your dependent all the stuff on page one you've got yourself all your personal information your social security number your spouse's social security number and their name all of your children's social security and numbers and names are on page one two which would be your dependence and then all your dependence would be would be there as well and then you would check next to your dependence name if they qualify for the child tax credit or the other dependent credit you can't check both of them because they can't qualify for both they can only qualify for one or the other that's why we had one of those restrictions here for the other dependent credit being that they don't qualify for the child tax credit or additional child tax credit and then on page two you calculate the credit of course so adopted child we'll see examples of that later by the way adopted child an adopted child is always treated as your own child an adopted child includes a child lawfully placed with you for legal adoption if you are a U.S. citizen or U.S. national and your adopted child lived with you all year as a member of your household in 2022 that child meets condition three earlier to be a qualified person for the ODC other dependent credit so limits on the CTC and ODC child tax credit and other dependent credit so the maximum credit amount of your CTC child tax credit and ODC other dependent credit may be reduced if you're one or two apply either one or two apply number one the amount online 18 of form 1040 1040 SR or 1040 NR is less than both credits so if the amount is zero you cannot take either credit because there's no tax to reduce but you may be able to take the ACTC if you are claiming the CTC so the additional child tax credit if you're claiming the child tax credit if you cannot take the ACTC if you're only claiming the ODC in other words okay so C part to a additional child tax credit for all filers later so this has to do with the refundable and non-refundable portions of it so remember the idea is that this is an income tax normally you can't get credits that take your liability below zero but the refundable portion which is determined as the ACTC you may be able to get that which means it's more of like a benefit type of program but you cannot apply the ACTC to an ODC which went below zero meaning the other dependent credit doesn't qualify for that refundable portion so one more time the amount online 18 of your form 1040 or 1040 SR 1040 NR is less than both credits so if the amount is zero you cannot take either credit because there's no tax to reduce so you don't have any taxes you already don't have any taxes you don't get to go below zero but maybe you do but you may be able to take the ACTC additional child tax credit the refundable side of things if you are claiming the CTC the child tax credit so you were going to take the child tax credit but you couldn't because your liability in essence went below zero so you can't take it but you might be able to get the ACTC but what if they were another dependent not a child tax credit but other dependent you cannot take the ACTC if you are only claiming the ODC the other dependent credit you don't get that refundable portion it's my interpretation so as you can see part 2A additional child tax credit for all filers later two, your modified adjusted gross income the AGI is more than the amount shown below for your filing status married filing jointly 400,000 pretty high threshold all other filing status is 200,000 pretty high threshold