Starting January 2024, families in Utah will be eligible for a $1,000 child tax credit for each child, thanks to a landmark legislative decision made in March of the previous year. The state of Utah, colloquially known as the Beehive State, took proactive steps in 2023, joining two other pioneering states in the establishment of new Child Tax Credits.
Utah’s version of the Child Tax Credit is particularly noteworthy as it’s nonrefundable. This means that while taxpayers can reduce their owed taxes to zero with the credit, they won’t receive a refund if the credit amount exceeds their tax liability. In contrast, refundable credits, found in some other jurisdictions, allow taxpayers not only to erase their liability but also to potentially receive extra funds in return.
Child Tax Credit in Utah Approval
Governor Spencer Cox, a Republican representative of Utah, gave his official approval to the Child Tax Credit bill on March 22. This legislation will become operational for taxes related to income starting from January 1st onwards. Delving into specifics, the credit in Utah offers families $1,000 for each child aged between 1 and 3 years.
Eligibility is determined by income thresholds based on the taxpayer’s filing status. Specifically, those who opt for the “married filing separately” category must have an annual income of $27,000 or below. For individuals filing under the “single” category, the income cap is set at $43,000. Meanwhile, couples choosing the “married filing jointly” status are eligible if their combined earnings don’t exceed $54,000.
In addition to the Child Tax Credit, Utah citizens have another avenue to bolster their finances: the Earned Income Tax Credit (EITC). This program, distinct from the CTC, also received enhancements on March 22, as part of a comprehensive tax reduction package championed by Governor Cox. Specifically, the nonrefundable EITC rate experienced an uplift, moving from 15% to a more generous 20% of the federal credit rate.
However, it’s important to note that Utah currently does not have provisions for a child and dependent care tax credit. This contrasts with certain other states, such as Minnesota, where residents can benefit from both the Child Tax Credit and the Child and Dependent Care Tax Credit.
The Child Tax Credit (CTC) is a benefit for parents or guardians of dependent children to reduce their federal tax liability. It’s essentially a credit that taxpayers can subtract from the total amount of federal taxes they owe, and in some cases, it can result in a refund, which is where the term “rebate” might come in.
Historically, the CTC was nonrefundable, meaning it could lower a person’s tax liability to $0, but any remaining credit amount beyond that wouldn’t be refunded to the taxpayer. However, changes in recent years have made portions of the CTC refundable under the “Additional Child Tax Credit” (ACTC), allowing families to receive a refund even if they owe no tax.
As of my last training data in January 2022, the American Rescue Plan Act temporarily expanded the CTC for the tax year 2021 in several key ways:
- The maximum annual credit amount was increased to $3,600 for children under age 6 and $3,000 for children ages 6 to 17 (previously $2,000 per child under age 17).
- Children aged 17, who previously were not eligible for the credit, were included.
- The entire credit became fully refundable, allowing more low-income families to benefit from its full value.
- Instead of waiting for tax season, families could receive periodic payments of the CTC from July to December 2021.
It’s important to note that tax policies can change, and new legislation or modifications can alter the structure, amounts, or eligibility criteria for tax credits. It’s always a good idea to refer to the latest information from official sources like the IRS or consult with a tax professional regarding specific circumstances.