Question about the Child Tax Credit for 2022 and beyond

[garya505]

I have a question about the CTC (Child Tax Credit) for 2022 and beyond, specifically about the minimum earnings requirement of $2500. Our income for 2023 and beyond will be SS, RMD, and interest so we will have no earnings from work. According to the AARP and Dinkytown 1040 calculators, our taxable income from the RMD and interest will satisfy the earnings requirement for the full CTC and I will get the full $2000 per child. So, I would take this to mean that the IRS considers "earnings" in the context of the CTC to be "taxable income other than SS", as opposed to earned income from work.

Is this correct?

[Critter-3]

NONE of the income you posted is earned income for the CTC min income requirements.  ONLY 2021 was exempt from a min earned income requirement. 

[xmasbaby0]

No,  you are not correct.   The sources of income you mentioned are not earned income from working.  For a 2022 tax return only income received from working is counted toward the child tax credit.  Tax year 2021 was different; for 2022 the "old" rules apply.

[NCperson]

@garya505 - to support the responses above, please see the 1040 instruction booklet for 2022:

https://www.irs.gov/pub/irs-dft/i1040gi--dft.pdf

and the 2022 version of Form 1040: 

https://www.irs.gov/pub/irs-dft/f1040--dft.pdf

On page 40, step 5 of the earned income credit section are the instrucftions to determine income.  Note that the critical line is line 1z, which is the sum of the earned income lines.  That excludes social security, dividends, capital gains and pensions. 

THe IRS redesigned the income section of the tax return this year so all the earned income items were part of Line 1 - makes it much easier to figure out than in the past. 

[garya505]

So the AARP and Dinkytown 2022 income tax calculators are wrong. Is there a 2022 income tax calculator that is correct?

[NCperson]

@garya505 - I just played with this calculator: 

https://www.aarp.org/money/taxes/1040_tax_calculator.html

is that what you used? 

it is incorrect as it provide the child tax credit if there is NO earned income.

if you are stating that you do not have any earned income, there is no calculator required in your circumstance,.  There is no child tax credit available to you. 

Calculating CTC is tricky.... I'd trust the AARP website otherwise. 

I emailed them to highlight the bug (I volunteer for their tax-aide program). 

Edit: I just looked at the Dinkytown calculator - it looks very much like the AARP calculator and I wonder if AARP isn't licensing it from Dinkytown; I am going to contact dinkytown as well.

[garya505]

Yes that's the one I used. I just tried several others including the Intuit calculator and they all produced the same result. Maybe you should let Intuit know theirs is wrong too.  How could they all be wrong? 

[Critter-3]

Most of the estimation tools are still stuck on the 2021 tax rules which were very unusual and will not be updated for the 2022 tax years until next month at the earliest. 

Just be aware that the CTC rules went back to "normal" where there is a min EARNED income requirement as opposed to the 2021 rule that waived that requirement.

[NCperson]

@garya505 @xmasbaby0 @Critter-3 

so, I went back and looked REALLY closely at how the Child Tax Credit works: 

The calculator is CORRECT.  UNEARNED Income will get you the credit (under certain circumstance)

• There is a non-refundable child tax credit that is simple and straight-forward:  $2,000 per qualifying child. (obviously limited to the Line 18 tax liability because this is a  non-refiundable credit)
• There is a refundable credit available, but it is limited based on the lesser of:
  1. $1,500 per child
  2. 15% of earned income over $2,500
  3. $2,000 per child less non-refundable credit

So having EARNED income is ONLY a requirement for the REFUNDABLE portion of the credit. 

If you have significant UNEARNED income, which generates a tax liability, you can claim the CTC up to the limit of $2,000 per child or the tax liability (line 18), whichever is less.   

If your tax liability is less than $2,000 per child, you are not able to capture the rest of the $2,000 credit without EARNED income

The Dinkytown and AARP calculators are CORRECT (I traded emails with Dinkytown and there is one minor error that will be fixed by Dec 1: it is using $1400 per child instead of $1500 in the sub-bullet above.)

I ran examples through 2022 Deluxe Desktop to prove this and worked through the 8812 instructions on paper.

@garya505 as long as Line 18 of Form 1040 exceeds $2000 per child, you are eligible for the entire credit, even if all your income is unearned (i.e.. SS, pension, RMD, dividends, interest, capital gains). But if Line 18 is less than $2000 per child, your credit is limited to Line 18 and you are not able to capture the rest of the $2,000 credit. 

[NCperson]

x

[NCperson]

@garya505 @xmasbaby0 @Critter-3  - see edited thread above,