Tax Law Changes for Tax Year 2022: Ten Tax Law Changes You Should Know About
The 2022 tax season is months away, but it’s a good time for you to be aware of some changes that may affect your 2022 personal tax return and tax planning. Some of the changes are reversals of policies adopted temporarily in tax years 2020-2021 to help American families with economic recovery coming out of the COVID-19 pandemic.
1. Standard Deduction
For most taxpayers, the standard deduction has replaced individually itemized deductions such as mortgage interest, medical expenses and charitable contributions. If your deductions exceed the standard, you can itemize for the best tax outcome – For example, one of my clients incurred high medical expenses one year due to a spouse’s lengthy hospital stay, so it made sense for her to itemize that year.
The standard deduction amounts were increased slightly for 2022 to account for inflation, with married couples allowed $25,900, plus $1,400 for each spouse age 65 or older. Singles can claim a $12,950 standard deduction or $14,700 if they’re at least 65 years old. Head-of-household filers get $19,400 for their standard deduction.
2. Child Tax Credit
The child tax credit reverts to its pre-2021 form, dropping back down to $2,000 per child for children 6 to 17 years of age and $3,600 for children 5 years old and younger. The former age limit of 16 years old returns and there will be no monthly advance payments of the credit in
2022.
3. Child Care Credit
For 2022, your child and dependent care credit for expenses such as day care is non-refundable, meaning it can reduce your tax burden but not refund additional money. The maximum credit percentage also drops from 50% to 35% and is only allowed for up to $3,000 in expenses for one child/dependent and $6,000 for more than one. In addition, the full credit will only be allowed for families making less than $15,000 a year. Above that, the credit starts to phase out.
4. Earned Income Credit
For tax year 2022, the minimum age for a childless worker to claim the EIC jumps from age 19 to 25, with a maximum age limit of 65 years. The maximum credit available for childless workers is reduced from $1,502 to $560. For workers with children, the credit amounts are increased slightly to adjust for inflation.
5. Stimulus Payments/Recovery Rebate
The economic stimulus payments in 2020 and 2021 were helpful for many clients who faced a drop in income due to the pandemic. But you will not receive any stimulus check payments in 2022, thus there is no recovery rebate credit if you did not receive your stimulus payments.
6. Third-Party Payment Like PayPal/Venmo
Starting with the 2022 tax year, these third-party payment settlement networks will report what you are paid over $600 during the year for goods or services. You will receive a 1099-K form covering money you received selling goods and services, but it does not apply to gifts or other payments from family and friends.
7. Charitable Contribution
For my clients who itemize their deductions, charitable contributions are one of the areas that are included as deductible. In 2020 and 2021, even taxpayers who used the standard deduction were eligible to receive an “above-the-line” deduction for up to $300 in charitable contributions. But this disappears in tax year 2022.
8. Classroom Expenses
For the 2022 tax year, teachers and other educators who use their own money to buy books, supplies and other materials for the classroom can deduct up to $300 of these out-of-pocket expenses. The deduction can be taken if you are a kindergarten through 12th grade teacher, instructor, counselor, principal, or aide in a school for at least 900 hours during a school year. But parents whose children are homeschooled are not eligible for the deduction.
9. Standard Mileage Rate
This is a helpful change for my many clients who use vehicles for business purposes. With gas prices rising through much of 2021, the IRS adjusted the mileage rates used to calculate tax deductions for the use of a vehicle for business purposes. For vehicle mileage driven from January 1 to June 30, the 2022 standard mileage rate for business driving is 58.5¢ per mile. From July 1 to December 31, the mileage rate rises to 62.5¢ per mile.
10. Gift Tax Exclusion
The annual gift tax exclusion for 2022 rises from $15,000 to $16,000 per person receiving a cash gift, meaning you can give up to $16,000 to each child, grandchild or any other person in 2022 without having to file a gift tax return.
There are many other changes to the tax laws for tax year 2022 – some in specialized circumstances that only affect certain taxpayers and others that are small adjustments for inflation –but I hope this initial overview is helpful to you. Please have a healthy and successful fall season as we head into tax year 2022!
If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
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