With IRS Changes to Child Tax Credit, Your Refund Will Shrink. Here's What You Can Do

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Updated 4:15 p.m. Friday

It’s been less than two months since tax season started. And Jaqueline Marcelos, who leads the free tax clinic at the Mission Economic Development Agency (MEDA) in San Francisco, has already heard the same concern from dozens of families: Why has my tax refund changed so much?

“Many clients are coming here thinking that this year they’re going to get the same refund as last year,” Marcelos said. One client, she says, qualified to receive thousands of dollars in her return when filing in 2022 — but this year she’ll actually end up owing money to Uncle Sam.

What changed? Among other things, the extended child tax credit from 2022 has ended, and many parents and caregivers are seeing a major drop in their tax refund.

The change in the child tax credit, explained

When the American Rescue Plan was approved by Congress in 2021, the child tax credit increased from $2,000 to $3,600 for qualifying children under 6. For kids between ages 6 and 18, the child tax credit increased to $3,000.

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But legislators failed to renew this extended credit at the end of 2021. And now, families across the country are seeing thousands of dollars disappear from their returns — at the same time that other pandemic-related aid programs are drying up.

Some parents who file at the MEDA clinic in San Francisco can’t even believe the difference, so Marcelos asks them to bring their returns from last year. “We put both taxes together and explain line by line why they’re getting a lower refund,” she said.

Although this year’s filing deadline for most of the country falls on Tuesday, April 18, the IRS extended the filing deadline for residents living in 44 of California’s counties — including all nine Bay Area counties — to Oct. 16, due to the widespread flooding and landslides caused by this year’s winter storms. California officials have confirmed that the filing deadline for state taxes has also been moved to Oct. 16.

You also don’t have to do anything to get the tax filing extension if you live in one of the nine Bay Area counties. “The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area,” the agency said in a February press release. “Therefore, taxpayers do not need to contact the agency to get this relief.”

With the worries of working-class families in mind, KQED spoke with the following experts about what parents and caregivers can expect when they file in 2023 — and how they can prepare for a potentially smaller return:

• Jaqueline Marcelos, leader of the free tax clinic at MEDA
• Amy Spivey, director of the UC Law Low-Income Taxpayer Clinic
• Lindsay Rojas, tax specialist with United Way Bay Area

Prepare for a smaller return — and find free filing help

Tax filings are unique for every family, but the cuts on the child tax credit this year are universal. Parents will now receive a $2,000 credit for each child who is both their dependent and age 16 or younger (17 is no longer the upper age limit for the credit).

This means that a parent with two 5-year-old kids could see their refund diminish by at least $3,200. And some parents, UC Law’s Amy Spivey said, “might not receive any refund — they actually may have to pay the IRS.”

This has been especially frustrating for lower-income families in the Bay Area who benefited from large refunds last year to help offset the high cost of living. “It was a lot of money that came in,” MEDA’s Marcelos said. “And now this year, boom, no money.”

• Find a free tax filing service near you

Marcelos has even had conversations with clients who insist the smaller returns are a mistake, and that they’d rather file with a private tax filer, whom they believe could get them bigger returns. “So many clients say, ‘I am going to report that I donated $50, $60, or I want to put down this expense, and I am going to request an extra form in my taxes,” Marcelos said — adding that, yes, a private filing company can write off what a client asks for, “but that [still] might not increase the amount of money that you’re getting back.”

Marcelos highlighted that the MEDA clinic is part of the IRS-administered Volunteer Income Tax Assistance (VITA) program, and that the tax preparers on her team are trained to answer questions from filers with unique situations such as having multiple jobs, or using an individual taxpayer identification number (ITIN) to file. Filing at a VITA site or another community clinic is not just free, she stresses, but also provides access to the knowledge of a preparer who can connect you to financial education trainings — or public benefit programs you may qualify for.

Across the Bay Area, dozens of nonprofit organizations and VITA sites are offering free tax filing services, both in person and virtually. Find the closest one to you using United Way Bay Area’s map.

If you’re affected by the change in the child tax credit, know more credits are out there

The child tax credit may be back down to $2,000, but there are other federal tax credits that families should keep in mind when filing, says Rojas from United Way.

The biggest one is the earned income tax credit (EITC), which is available for both individual filers and married couples who make below a certain income limit. What you get depends on factors like income and number of children. A couple who files jointly, has two kids and has an income smaller than $55,529, for example, could potentially receive a maximum credit of $6,164.

California has its own version of this credit: the CalEITC. “That’s another credit that filers can potentially qualify for, if they had earned income up to $30,000,” Rojas said, adding that filers with no kids could receive up to $275, and those with kids could be eligible for an amount ranging between $1,843 and $3,417, depending on the number of children they have. Folks who don’t have a Social Security number but have an ITIN also are eligible for this credit.

Once you qualify for the CalEITC, says Rojas, that opens the door for other, additional credits. “If [filers] have children who are under 6 years old, they would then qualify for California’s young child tax credit and they can receive a credit of up to $1,083.” That $1,083 number stays the same, regardless of how many kids a filer has.

Additionally, San Francisco residents who qualify either for the federal EITC or the CalEITC can also receive the city’s working families credit, which grants filers with kids a maximum credit of $250, independent of the number of children. But to receive this credit, says Spivey from UC Law, you have to complete a separate working families credit application with the city’s Human Services Agency. “This isn’t something that is claimed directly on your tax return,” she said.

Something else to keep in mind about San Francisco’s working families credit: The deadline has also been pushed back to Oct. 16.

California has a long list of additional credits, including a renters credit (which ranges between $60 and $120, depending on how you file) and a foster youth tax credit, which is new this year and provides filers who were in the California foster care system when they were 13 or older — and who are now between 18 and 25 — with another credit that ranges between $1,083 and $2,166, depending on how they file.

See a more extensive list of California’s tax credits.

Even with a smaller return, it’s still a good idea to file

IRS data shows that in the 2012–19 tax years, roughly a quarter of eligible California taxpayers did not claim the federal earned income tax credit (EITC).

That’s millions of people who missed out on what could have been a sizable credit going into their tax returns. UC Law’s Spivey explains that many people don’t claim the EITC because they choose not to file their taxes.

“Many taxpayers who might be eligible for the EITC aren’t required to file because they make under the filing threshold,” she said. “But if they did file, they could likely receive a refund in the form of any taxes that they paid and also the EITC or the child tax credit, if they’re eligible for those.”

Spivey also points out that if you did not file your taxes last year, but you file for both 2021 and 2022 this year, you would be eligible for the 2021 extended child tax credit. “If you did not file in 2021, you can still file this year and receive that large credit, if you’re eligible,” she said.

And if your return this year isn’t as big as in previous years, making sure to file this year can still have long-term benefits for your kids, says Marcelos from MEDA.

Many of the people she sees at the tax clinic are parents who dream that their kids go to college one day. “But if we parents don’t have our taxes from past years available, our kids can’t complete the FAFSA form when they are applying for colleges,” she said, referring to the Free Application for Federal Student Aid, the federal form students must complete to receive financial aid from colleges, scholarships and grants.

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