Many families see the annual tax refund check as a windfall that will finance a family vacation or to catch up on bills. Unfortunately, that may not be as true in 2022 and going forward. Several tax credits offered on personal tax returns (Form 1040) as part of pandemic relief are expiring and will no longer be available in tax year 2022. That means some taxpayers could see smaller tax refunds for 2022 and could even end up owing money. As in most tax matters, knowing ahead of time what might happen will allow you to plan for it.
Child Tax Credit
Available to working parents who meet certain income requirements and other rules, the child tax credit was up to $3,600 per child is 2021. But for tax year 2022, it reverts to a maximum of $2,000 per child. So, a family with three children could have received a credit of as much as $10,800 in 2021, but they will only get up to $6,000 in 2022.
Earned Income Tax Credit (EIC)
The EIC is available to low- to moderate-income taxpayers. A qualifying taxpayer with no children who received approximately $1,500 in 2021 would now receive approximately $560.
Child/Dependent Care Credit
Taxpayers who pay for day care or similar for children and dependents while they work could receive a credit in 2021 of up to $8,000 in care expenses. For 2022, the maximum credit they can receive is $2,100.
Economic Stimulus Payments
Most taxpayers received economic impact payments of $1,400 in March of 2021 as direct deposits in their bank account. Those who did not get the direct deposit were able to claim it on their 2021 tax returns as a refundable credit. Since no stimulus payments occurred in 2022, that is one less credit for some taxpayers.
Charitable Deduction
Taxpayers who itemize their deductions can include their contributions to charity among their tax deductions. In 2021, non-itemizing taxpayers could claim a special deduction of up to $300 in contributions. But this does not apply in 2022.
Extensions and Estimated Tax Payments
Some taxpayers with a history of getting refunds use a tax filing extension (typically mid-October) to give them more time to pull their tax information together. When no tax money is owed, this works out fine. However, if they end up owing the IRS, there will likely be a late-payment penalty and interest owed unless they pay an estimated tax when they file the return.
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].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
