Tax season is right around the corner. Next Monday, January 24th, the IRS will start accepting tax returns. For many Americans, this time of year is a double-edged sword. On one hand, gathering all the documents and preparing taxes can be incredibly stressful. On the other hand, though, tax refunds almost make the hassle worth it. This year, some American workers will see a little more money on their tax returns thanks to some major policy changes.
Early last year, President Joe Biden signed the American Rescue Plan Act into law. That act gave millions of Americans stimulus checks to help mitigate the financial burden of the pandemic. Additionally, it contained some key policy changes that will make some Americans’ tax returns bigger this year.
Policy Changes Affect the Earned Income Tax Credit
The American Rescue Plan Act boosted one of the most-claimed tax credits. After the new tax policy changes, the Earned Income Tax Credit is bigger than it was before. This is especially true for workers who don’t have kids. Before, childless workers could get a maximum of $538 from the EITC. Now, though, those same workers will be able to get up to $1,502.
Additionally, the policy changes make it easier for those with investments to get in on the Earned Income Tax Credit. Before, the limit on that income was $3,650. Now, it’s up to $10,000.
In 2022, workers can choose to use their 2019 or 2021 income to calculate their EITC. You should use whichever brings the highest return, according to Business Insider.
Policy Changes Boosted the Child Tax Credit
In many ways, current policy changes made it easier for American workers to claim the Child Tax Credit. Additionally, it raised the amount of money the IRS will refund for each qualifying child.
Before these policy changes, the Child Tax Credit offered up to $2,000 per child. However, they would only refund $1,400 of the total. Now, the IRS is offering $3,600 for children under six and $3,000 for kids between 6 and 17 and will refund the entire amount. Most American families already received half of that money in advance payments throughout the year.
Child and Dependent Care Credit
The policy changes brought on by the American Rescue Plan Act also boosted the Child and Dependent Care Tax Credit. This credit allows taxpayers to get money back on child or dependent care expenses. This includes things like before and after school programs, babysitters, or housekeepers. Taxpayers can get up to $4,000 per qualifying child or dependent and up to $8,000 for two or more qualifying people, according to the IRS website.
Recovery Rebate Credit
The policy changes put in place by the ARPA created this tax credit. It is directly linked to the third round of stimulus checks that came out in 2021. Families who didn’t get their third payments can claim the Recovery Rebate Credit on their tax returns. It will give them the amount they would have qualified for when the checks came out. Additionally, these payments relied on past tax information for eligibility. Those who have added new children to their families in 2021 will be able to claim the credit as well.