 Income tax 2022-2023. Credits for qualifying children and other dependence overview. Let's do some wealth preservation with some tax preparation. 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. Most of this information comes from the instructions for schedule 8-8-1-2 Credit for qualifying children and other dependents 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 of the income tax formula when dealing with the credits. Let's recap the income tax formula here. Remember the first half of the income tax formula is in essence an income statement although a strange one where we have income we have the above the line deductions which you can call adjustments to income to give us that very important subtotal adjusted gross income or AGI it being important because often times when we look at credits and deductions they might phase out when income levels go up and that phase out is usually not based on the top line of income but rather on the adjusted or AGI number. So then we're going to subtract out the greater of the standard or itemized deduction to get us to the taxable income which is kind of similar to net income of a normal income statement. So this is kind of like the bottom line of the normal income statement format or part of the income tax formula unlike with a normal income statement we want taxable income as low as possible as opposed to normally with net income we want it as high as possible because we're going to be applying the tax to this not with one tax rate but with the progressive tax system the tables often using software to help us do that to get to the tax before credits and other payments. Now you would think we're close to the end right here but we're not really because we still have a lot that we have to be dealing with one of those being the credits. So we have credits which some of which are going to be refundable so may not be refundable tax credits that we will have to be dealing with. The credits are similar to the deductions in that we as taxpayers like them but if we had a dollar credit versus a dollar deduction typically we would want the credit because the credit will give us that full dollars worth of benefit whereas if we had the dollars worth of deduction it would simply decrease the taxable income by a dollar and therefore only give us a benefit that would be proportional to the tax rate that we have as opposed to the credit where we would get that full dollar of benefit which could be contingent still on whether it be refundable or non refundable. If we think about refundable or non refundable the credits that are non refundable are the ones that if we have a tax liability that goes below zero we're not going to get the benefit of the credit because we don't owe any taxes but the refundable credits are those that will give us a benefit even though we don't owe any taxes so we get a quote refund end quote even though we don't have a tax liability right and so we have to deal with the credits down here we also have to deal with other taxes that are going to be calculated we calculated up top the federal income tax but you might have like self employment tax for example that we also have to deal with if you have a small business and then that's going to give us our total tax which is a little bit deceiving of a subtotal here because we took into consideration these credits which are like different than deductions and we have the other taxes that are imposed and then we're going to compare that usually you would think well can't I just finally compare that to the payments I've made with my withholdings or my estimated tax payments to get to the tax refund or amount due but we also have to muddy this lineup with the refundable credits so we have a different section for the refundable credits to be able to show and calculate those credits that act as payments in that they're not going to be stopped even if the tax liability goes below zero you're still going to get a benefit from them so preferably if you had a decision on which category of credit you'd like the refundable credit especially if you're on the low income side of things because it's likely then that even if your tax goes to zero you'll still get a benefit from that credit and then finally we get the tax refund or tax due okay so when looking at the tax form we're focused on the tax and credit second page of the form 1040 and we're looking here line 19 child tax credit or credit for other dependents schedule 8812 and then on the payment side we have the refundable side of the credit additional child tax credit from schedule 8812 alright so what's new with this one so notice that when we have the whole covid thing the IRS was attempting or the government was attempting through the IRS to try to put money into the economy we saw that with of course the stimulus payments and they also adjusted some of these refundable credits one of the big ones being the child tax credit so we have a lot of fluctuation happening with some of these credits and they're going to have to pull back at this point in time in my opinion because of course putting all that money out there causes inflation which I think is actually going to be more detrimental to lower income people in my opinion in the long term than it was beneficial in the short but we'll see how that plays out in any case they're going to start reeling these things back in to go back to kind of a sustainable level and so we're going to have to see this fluctuation take place so child tax credit enhancements have expired so many changes to the CTC which is going to be the child tax credit abbreviation for 2021 implemented by the American Rescue Plan Act of 2021 have expired for tax year 2022 the enhancement of credit allowed for qualifying children under age 6 and children under age 18 has expired so they didn't renew that which would be amazing if they did because that was a big change or difference which was argued to be a change that was for you know that the recovery period or whatever so for 2022 the initial amount of the CTC child tax credit is $2,000 for each qualifying child so the credit amount begins to phase out where modified adjusted gross income so now it's got a phase out based on not the top line income level but the HCI modified adjust gross income exceeds $200,000, $400,000 in case of joint return the amount of the CTC child tax credits that can be claimed as a refundable credit meaning it will take your even if your tax liability is zero you'll still get a benefit which makes it not a refund really even though it'll still be called a refund but really it's kind of a benefit program in that case because you're not paying taxes they're using the tax code to have like a benefit program in place with some of this refundable component so it's limited as it was in 2020 except that the maximum ACTC which stands for the additional child tax credit will get into some more of these terms in future presentations amount for each qualifying child increased to $1,500 the increased age allowance for a qualifying child has expired a child must be under age 17 at the end of 2022 to be a qualifying child then you've got the ACTC and bona fide residents of Puerto Rico bona fide residents of Puerto Rico are no longer required to have three or more qualifying children to be eligible to be to claim the ACTC bona fide residents of Puerto Rico may be eligible to claim the ACTC if they have one or more qualifying children then we've got the advanced child tax credit payments this was another very unusual thing they did with the child tax credit that was the advanced child tax credit payments have not been issued for 2022 so you will recall you've probably been aware of this one because the IRS was promoting this one a lot you'll remember that they had the stimulus checks which went through basically the IRS for the issuance of the stimulus checks and then I think what happened is they couldn't send out any more stimulus checks but they still wanted to be sending out money so they used the child tax credit as a vehicle for doing that and they basically sent out these advanced payments for the child tax credits in the year of 2021 so that people then when they filed the 2021 return had to figure out how much they received in advanced payments and compare that to the credit so they stopped doing that in 2022 so you didn't get any of those advanced child tax credit payments during the year in 2022 you're going to get your benefit from the child tax credit like normal before that advanced payment system was set up when you filed the tax return by say April 15th or whatever of the following year 2023 in this case and it's kind of interesting what they've been doing with these advanced payments so this seems like a technique that they've been toying with a lot more meaning trying to estimate what your taxes will be what benefits you're going to be getting when you file the tax return and then try to give you an advance of what that benefit will be we still see that for example in the healthcare marketplace you might have a situation where that is basically being applied lowering the amount of insurance premiums based on an estimate of the credit that you're going to be receiving when you file the tax return it's an interesting kind of concept but it does lead to a lot of confusion because it's an estimate and oftentimes the estimates are going to be wrong in many cases when you apply them to so many different people so it's curious to see the pros and cons of that kind of method any case, reminders, delayed refund for returns claiming the ACTC the IRS cannot issue refunds before mid-February for returns that properly claim the ACTC so note the reason you would think this would be the case is because when we're talking about these refundable type of credits those are the ones most likely for people to try to use identity theft and file fraudulent returns for because those are the ones that are going to give you that refund even if the income level is low and I think to combat that they need a little bit more time to confirm those types of returns in order to lower the amount of like fraud that could be taking place with those types of programs note that all of these programs that go into place there's always this pros and cons kind of situation when they have more money that's going out there and we saw that with this whole COVID thing when they're shooting money out there hopefully it helps a lot of people but at the same time it creates a ripe environment for fraudsters as well to be taking advantage of the situation so you gotta find a happy medium between them so this time frame applies to the entire refund not just the portion associated with the ACTC so you might say why don't you just hold the amount for the ACTC well no they're going to hold the whole thing until they've approved the thing okay so abbreviations the following abbreviations will be used in these instructions when appropriate so we've got the ACTC we've seen already which means the additional child tax credit you've got the ATIN the ATIN means adoption taxpayer identification number you've got the CTC which means the child tax credit and of course these two are similar so you've got the CTC and then you've just got to add the A in front of it and say okay that's the additional child tax credit you've got the ITIN means individual taxpayer identification number you've got the ODC which means the credit for other dependents so if they can't get the child tax credit then they might get the credit for other dependents and then you've got the SSN that's the normal kind of identification number for people if they have, if they're citizens and they have the social security number the SSN the TIN means taxpayer identification number a TIN maybe an ATIN an ITIN or an SSN the IRS is referring when we're referring to individuals then we see them as numbers the IRS sees us as numbers and whatnot so they might refer to it as a more broad term as a TIN which may include under the umbrella of that broader term the ATIN and ITIN or SSN social security number so other abbreviations may be used in these instructions and will be defined as needed