How Much Money Can I Expect From New Tax Law
Now that this year'south tax filing flavor is over, it'southward time to beginning thinking about next yr's return. After all, the more than tax planning you do, the more money you may be able to save. But proper taxation planning requires an sensation of what'south new and changed from last twelvemonth — and at that place are enough of tax police force changes and updates for the 2022 tax year that savvy taxpayers need to know about.
Large tax breaks were enacted for the 2021 tax yr by the American Rescue Plan Act, which was signed into constabulary in March 2021. But most of those tax law changes expired at the end of 2021. As a upshot, the child tax credit, child and dependent care credit, earned income credit and other popular taxation breaks are unlike for the 2022 tax year than they were for 2021. Other 2022 tweaks are the result of new rules or annual aggrandizement adjustments. But no affair how, when or why the changes were made, they can injure or help your bottom line — then you demand to be set for them. To help you out, we pulled together a list of the almost important tax law changes and adjustments for 2022 (some related items are grouped together). Use this information now so you tin can hold on to more than of your hard-earned greenbacks adjacent yr when it'south time to file your 2022 return.
Child Revenue enhancement Credit
Major changes were made to the child taxation credit for 2021 – but they were only temporary. The credit amount was increased, the credit was made fully refundable, children upward to 17 years of age qualified, and one-half the credit amount was paid in accelerate through monthly payments from July to December last twelvemonth. President Biden and Congressional Democrats tried to extend these enhancements for at to the lowest degree one more yr, but they oasis't been able to get that done so far (and probably won't be able to later).
As a result, the kid revenue enhancement credit reverts back to its pre-2021 form for the 2022 tax year. That means the 2022 credit amount drops back downwards to $2,000 per kid (it was $iii,000 for children vi to 17 years of age and $three,600 for children 5 years former and younger for the 2021 tax year). Children who are 17 years old don't qualify for the credit this year, because the erstwhile age limit (16 years quondam) returns. For some lower-income taxpayers, the 2022 credit is only partially refundable (upwards to $one,500 per qualifying child), and they must have earned income of at to the lowest degree $2,500 to accept advantage of the credit'due south express refundability. And there will exist no monthly advance payments of the credit in 2022.
Kid and Dependent Care Tax Credit
Meaning improvements were also made to the child and dependent care credit for 2021. Only, again, the changes only applied for one year.
By mode of comparison, the 2021 credit was worth 20% to 50% of upwards to $8,000 in eligible expenses for i qualifying child/dependent or $16,000 for ii or more. The percent decreased every bit income exceeded $125,000. When you combine the top percentage and the expense limits, the maximum credit for 2021 was $iv,000 if you lot had one qualifying child/dependent (50% of $8,000) or $eight,000 if you had more than one (50% of $16,000). The credit was also fully refundable in 2021.
For 2022, the kid and dependent care credit is non-refundable. The maximum credit percentage also drops from 50% to 35%. Fewer intendance expenses are eligible for the credit, also. For 2022, the credit is only allowed for up to $three,000 in expenses for i child/dependent and $6,000 for more than than one. When the 35% maximum credit percentage is applied, that puts the pinnacle credit for the 2022 tax year at $one,050 (35% of $3,000) if yous accept just ane kid/dependent in your family and $2,100 (35% of $6,000) if you have more. In add-on, the full child and dependent care credit will merely be immune for families making less than $xv,000 a year in 2022 (instead of $125,000 per yr). After that, the credit starts to stage-out.
Earned Income Tax Credit
More workers without qualifying children were able to claim the earned income taxation credit (EITC) on their 2021 revenue enhancement render, including both younger and older Americans. The "childless EITC" amounts were higher, too. However, in one case again, those enhancements expired at the end of last twelvemonth.
Without the 2021 improvements in identify, the minimum historic period for a childless worker to claim the EITC jumps back upward to 25 for 2022 tax returns (it was xix in 2021). The maximum historic period limit (65 years of former), which was eliminated for the 2021 tax yr, is also dorsum in play for 2022. The maximum credit available for childless workers too plummets from $i,502 to $560 for the 2022 revenue enhancement year. Expanded eligibility rules for quondam foster youth and homeless youth that applied for 2021 are dropped besides. In improver, the rule assuasive you to use your 2019 earned income to calculate your EITC if information technology additional your credit amount no longer applies.
There are also several inflation-based adjustments that modify the EITC for the 2022 tax twelvemonth. For instance, the maximum credit corporeality is increased from $three,618 to $3,733 for workers with ane child, from $5,980 to $half dozen,164 for workers with two children, and from $half dozen,728 to $vi,935 for workers with three or more children. The earned income required to claim the maximum EITC is also adjusted annually for inflation. For 2022, it's $10,980 if you have i child ($10,640 for 2021), $15,410 if you have two or more than children ($xiv,950 for 2021), and $7,320 if you have no children ($7,100 for 2021).
The EITC phase-out ranges are adjusted each year to account for aggrandizement, besides. For 2022, the credit starts to phase out for articulation filers with children if the greater of their adjusted gross income (AGI) or earned income exceeds $26,260 ($25,470 for 2021). It'south completely phased out for those taxpayers if their AGI or earned income is at to the lowest degree $49,622 if they have one child ($48,108 for 2021), $55,529 if they have two children ($53,865 for 2021), or $59,187 if they have iii or more children ($57,414 for 2021). For other taxpayers with children, the 2022 stage-out ranges are $xx,130 to $43,492 for people with one child ($19,520 to $42,158 for 2021), $20,130 to $49,399 for people with two children ($nineteen,520 to $47,915 for 2021), and $20,130 to $53,057 for people with more than two children ($19,520 to $51,464 for 2021). If yous don't take children, the 2022 phase-out range is $15,290 to $22,610 for joint filers ($14,820 to $21,920 for 2021) and $nine,160 to $xvi,480 for other people ($8,880 to $xv,980 for 2021).
Finally, the limit on a worker'due south investment income is increased to $10,300 ($x,000 for 2021).
Recovery Rebate Credit
Americans were thrilled last March to hear they were getting a third stimulus check in 2021. Those checks were for up to $1,400, plus an additional $i,400 for each dependent in your family. (Use our Third Stimulus Check Computer to encounter you how much money y'all should have gotten.) But some people who were eligible for a third-circular stimulus check didn't receive a payment or got less than what they should take received. For those people, relief was available in the form of a 2021 tax credit known as the recovery rebate credit.
However, in that location are no stimulus bank check payments in 2022. As a effect, there is no recovery rebate credit for the 2022 tax year.
Tax Brackets
Although the revenue enhancement rates didn't alter, the income tax brackets for 2022 are slightly wider than for 2021. The difference is due to inflation during the 12-month period from September 2020 to August 2021, which is used to figure the adjustments.
2022 Taxation Brackets for Single/Married Filing Jointly/Head of Household
| Tax Rate | Taxable Income (Single) | Taxable Income (Married Filing Jointly) | Taxable Income (Head of Household) |
| 10% | Upwardly to $x,275 | Up to $20,550 | Up to $14,650 |
| 12% | $10,276 to $41,775 | $xx,551 to $83,550 | $14,651 to $55,900 |
| 22% | $41,776 to $89,075 | $83,551 to $178,150 | $55,901 to $89,050 |
| 24% | $89,076 to $170,050 | $178,151 to $340,100 | $89,051 to $170,050 |
| 32% | $170,051 to $215,950 | $340,101 to $431,900 | $170,051 to $215,950 |
| 35% | $215,951 to $539,900 | $431,901 to $647,850 | $215,951 to $539,900 |
| 37% | Over $539,900 | Over $647,850 | Over $539,900 |
Long-Term Majuscule Gains Taxation Rates
Tax rates on long-term capital gains (i.eastward., gains from the sale of majuscule assets held for at least one year) and qualified dividends did non change for 2022. However, the income thresholds to qualify for the various rates were adjusted for inflation.
In 2022, the 0% rate applies for individual taxpayers with taxable income upward to $41,675 on unmarried returns ($40,400 for 2021), $55,800 for caput-of-household filers ($54,100 for 2021) and $83,350 for articulation returns ($eighty,800 for 2021).
The 20% charge per unit for 2022 starts at $459,751 for singles ($445,851 for 2021), $488,501 for heads of household ($473,751 for 2021) and $517,201 for couples filing jointly ($501,601 for 2021).
The xv% rate is for filers with taxable incomes betwixt the 0% and 20% break points.
The 3.8% surtax on net investment income stays the same for 2022. It kicks in for single people with modified AGI over $200,000 and for articulation filers with modified AGI over $250,000.
For more than on long-term capital gains tax rates, see What Are the Capital Gains Tax Rates for 2021 vs. 2022?
Standard Deduction
The standard deduction amounts were increased for 2022 to business relationship for inflation. Married couples get $25,900 ($25,100 for 2021), plus $one,400 for each spouse age 65 or older ($1,350 for 2021). Singles tin claim a $12,950 standard deduction ($12,550 for 2021) — $14,700 if they're at least 65 years old ($14,250 for 2021). Head-of-household filers get $19,400 for their standard deduction ($xviii,800 for 2021), plus an additional $1,750 one time they reach historic period 65 ($1,700 for 2021). Blind people tin can tack on an actress $i,400 to their standard deduction ($one,350 for 2021). That jumps to $1,750 if they're unmarried and not a surviving spouse ($1,700 for 2021).
1099-K Forms
Starting with the 2022 tax year, 3rd-party payment settlement networks (e.g., PayPal and Venmo) will ship you a Form 1099-K if you lot are paid over $600 during the twelvemonth for goods or services, regardless of the number of transactions. Previously, the form was only sent if you received over $20,000 in gross payments and participated in more than than 200 transactions. The gross amount of a payment doesn't include whatsoever adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts.
This alter to the reporting threshold ways more than people than ever will become a 1099-Thousand form next twelvemonth that they will use when filling out their income tax returns for the 2022 revenue enhancement year. Even so, think that 1099-K reporting is merely for money received for goods and services. It doesn't apply to payments from family and friends.
Charitable Gift Deductions
The "above-the-line" deduction for up to $300 of charitable cash contributions ($600 for married couple filing a joint render) expired at the terminate of 2021. Every bit a effect, it isn't bachelor for the 2022 revenue enhancement twelvemonth (it was bachelor for 2020 and 2021). But people who claimed the standard deduction on their tax return (rather than claiming itemized deductions on Schedule A) were allowed to take this deduction.
The 2020 and 2021 suspension of the 60%-of-AGI limit on deductions for greenbacks donations by people who catalog also expired, so the limit is back in place starting with the 2022 tax year.
Retirement Savings
Here's some expert news for retirees: The IRS updated the tabular array used to summate required minimum distributions (RMDs) to account for longer life expectancies beginning in 2022. That means RMDs should be a fleck smaller starting in 2022 than they were earlier.
For people who are withal saving for retirement, many key dollar limits on retirement plans and IRAs are higher in 2022. For case, the maximum contribution limits for 401(thou), 403(b) and 457 jumps from $19,500 to $20,500 for 2022, while people born before 1973 can in one case again put in $6,500 more every bit a "catch-upwardly" contribution. The 2022 cap on contributions to Uncomplicated IRAs is $14,000 ($13,500 in 2021), plus an extra $3,000 for people age 50 and upward.
The 2022 contribution limit for traditional IRAs and Roth IRAs stays steady at $six,000, plus $1,000 as an additional catch-upward contribution for individuals age 50 and up. However, the income ceilings on Roth IRA contributions went upward. Contributions stage out in 2022 at adjusted gross incomes (AGIs) of $204,000 to $214,000 for couples and $129,000 to $144,000 for singles (up from $198,000 to $208,000 and $125,000 to $140,000, respectively, for 2021).
Deduction phaseouts for traditional IRAs besides outset at higher levels in 2022, from AGIs of $109,000 to $129,000 for couples and $68,000 to $78,000 for single filers (up from $105,000 to $125,000 and $66,000 to $76,000 for 2021). If only one spouse is covered by a plan, the phaseout zone for deducting a contribution for the uncovered spouse starts at $204,000 of AGI and ends at $214,000 (they were $198,000 and $208,000 for 2021).
More lower-income people may exist able to merits the "saver's credit" in 2022, besides. This taxation intermission can be worth upwardly to $1,000 ($2,000 for joint filers), but you must contribute to a retirement account and your adjusted gross income (AGI) must be below a certain threshold to qualify. For 2022, the income thresholds are $34,000 of adjusted gross income (AGI) for unmarried filers and married people filing a separate render ($33,000 for 2021), $68,000 for married couples filing jointly ($66,000 for 2021), and $51,000 for head-of-household filers ($49,500 for 2021).
Teacher Expenses
For the 2022 tax year, teachers and other educators who dig into their own pockets to purchase books, supplies, COVID-19 protective items, and other materials used in the classroom can deduct up to $300 of these out-of-pocket expenses ($250 for 2021). The maximum deduction for 2022 jumps to $600 for a married couple filing a joint return if both spouses are eligible educators – but not more than $300 each.
An "eligible educator" is anyone who is a kindergarten through twelfth course teacher, instructor, counselor, main, or aide in a schoolhouse for at least 900 hours during a schoolhouse twelvemonth. Homeschooling parents can't take the deduction.
This is an "above-the-line" deduction. So, you don't accept to itemized to merits it.
Kiddie Taxation
The kiddie tax has less bite in 2022. The first $i,150 of a child's unearned income is tax-gratuitous if the child is 18 years old or younger, or a full-time pupil under 24. The adjacent $1,150 is taxed at the kid's rate. Any excess over $2,300 is taxed at the parent'due south rate. (For 2021, only the beginning $1,100 was exempt and the next $ane,100 was taxed at the child'southward rate.)
Adoption of a Child
For 2022, the adoption credit can be taken on up to $14,890 of qualified expenses ($14,440 for 2021). The full credit is available for a special-needs adoption, even if it costs less. The credit begins to phase out for filers with modified AGIs over $223,410 and disappears at $263,410 ($214,520 and $254,520, respectively, for 2021).
The exclusion for company-paid adoption help was also increased from $14,440 to $14,890 for 2022.
Bonds Used for Education
The income caps are higher in 2022 for revenue enhancement-complimentary EE and I bonds used for education. The exclusion starts phasing out higher up $128,650 of modified AGI for couples and $85,800 for others ($124,800 and $83,200 for 2021). It ends at modified AGI of $158,650 and $100,800, respectively ($154,800 and $98,200 for 2021). The savings bonds must exist redeemed to help pay for tuition and fees for college, graduate school or vocational school for the taxpayer, spouse or a dependent.
Parking and Transportation Benefits
Employers tin provide a little more to their workers in 2022 when it comes to parking and transportation-related fringe benefits. The 2022 cap on employer-provided revenue enhancement-costless parking goes up from $270 to $280 per month. The 2022 exclusion for mass transit passes and commuter vans is also $280 ($270 in 2021).
Americans Working Abroad
U.Due south. taxpayers working abroad accept a larger foreign earned income exclusion in 2022. It jumped from $108,700 for 2021 to $112,000 for 2022. (Taxpayers claim the exclusion on Class 2555.)
The standard ceiling on the foreign housing exclusion is besides increased from $15,218 to $15,680 for 2022 (although overseas workers in many high-cost locations around the world qualify for a significantly higher exclusion).
Payroll Taxes
The Social Security annual wage base is $147,000 for 2022 (that'due south a $4,200 hike from 2021). The Social Security tax charge per unit on employers and employees stays at 6.ii%. Both workers and employers go along to pay the 1.45% Medicare taxation on all bounty in 2022, with no cap. Workers likewise pay the 0.9% Medicare surtax on 2022 wages and self-employment income over $200,000 for singles and $250,000 for couples. The surtax doesn't hit employers, though.
The nanny revenue enhancement threshold went upwards to $2,400 for 2022, which was a $100 increment from 2021.
Standard Mileage Rates
The 2022 standard mileage rate for business driving rose from 56¢ to 58.v¢ a mile. The mileage allowance for medical travel and military moves also increased from xvi¢ to eighteen¢ a mile in 2022. Nevertheless, the charitable driving charge per unit stayed put at 14¢ a mile — it's fixed by law.
Long-Term Intendance Insurance Premiums
The limits on deducting long-term care insurance premiums are college in 2022 for one historic period group. Taxpayers who are age 61 to lxx can deduct up to $iv,510 for 2022, which is a $10 decrease from the 2021 amount.
The 2022 deduction limits for all age groups are the same as the 2021 amounts. Here'south the complete list of limits by age:
- 40 years old or less = $450
- 41 to l years old = $850
- 51 to sixty years sometime = $1,690
- 61 to lxx years erstwhile = $4,510
- 71 years of historic period or older = $5,640
For most people, long-term care premiums are medical expenses deductible but by itemizers on Schedule A. However, self-employed people tin deduct them on Schedule 1 of the 1040.
Wellness Savings Accounts (HSAs)
The almanac cap on deductible contributions to health savings accounts (HSAs) rose in 2022 from $3,600 to $3,650 for self-only coverage and from $7,200 to $7,300 for family coverage. People born before 1968 can put in $1,000 more (aforementioned as for 2021).
Qualifying insurance policies must limit out-of-pocket costs in 2022 to $xiv,100 for family unit health plans ($14,000 in 2021) and $7,050 for people with individual coverage ($7,000 in 2021). Minimum policy deductibles remain at $2,800 for families and $1,400 for individuals.
For 2023 HSA-related amounts, see HSA Contribution Limits for 2023 Are Out.
Flexible Spending Accounts (FSAs)
For 2022, the limit on employee contributions to a healthcare flexible spending account (FSA) is $two,850, which is $100 more than than the 2021 limit. If the employer's programme allows the carryover of unused amounts, the maximum carryover amount for 2022 is $570 ($550 for 2021).
On the other hand, workers can't contribute as much to a dependent intendance FSA in 2022 as they could in 2021. Last year, as a COVID-relief measure, a family unit could sock away upward to $10,500 in a dependent intendance FSA without paying taxation on the contributions. But for 2022, the normal limit of $5,000-per-twelvemonth on taxation-free contributions applies in one case again.
Alternative Minimum Tax (AMT)
There'south adept news for anyone worried about getting hitting with the alternative minimum revenue enhancement: AMT exemptions ticked upward for 2022. They increased from $114,600 to $118,100 for couples and from $73,600 to $75,900 for single filers and heads of household. The phaseout zones for the exemptions get-go at higher income levels for the 2022 tax yr as well — $one,079,800 for couples and $539,900 for singles and household heads ($ane,047,200 and $523,600, respectively, for 2021).
In addition, the 28% AMT taxation charge per unit kicks in a bit higher in 2022 — above $206,100 of culling minimum taxable income. The charge per unit applied to AMTI over $199,900 for 2021.
Taxation "Extenders"
There'southward a group of tax breaks that are constantly scheduled to expire, but that keep getting extended by Congress for another year or two. These tax breaks are collectively referred to as "tax extenders."
But so far, Congress hasn't passed legislation to renew the "revenue enhancement extender" deductions and credits that expired at the finish of 2021. Well-nigh of the expired revenue enhancement breaks were for businesses, merely the post-obit expired tax breaks impacted individual taxpayers:
- Mortgage insurance premiums deduction;
- Health coverage tax credit for medical insurance premiums paid by certain Trade Adjustment Help recipients and people whose pension plans were taken over by the Pension Benefit Guaranty Corporation;
- Nonbusiness free energy property credit for certain energy-saving improvements to your home (e.yard., new energy-efficient windows and skylights, exterior doors, roofs, insulation, heating and air-conditioning systems, water heaters, etc.);
- Fuel prison cell motor vehicle credit;
- Alternative fuel vehicle refueling property credit; and
- Two-wheeled plug-in electric vehicle credit.
At some point, lawmakers may swoop in and extend some or all of these tax breaks one time again as they have in the past. They sometimes even brand the extensions retroactive, so the tax breaks listing above could all the same exist available for the 2022 tax year. We'll just take to wait and come across what Congress decides to do with these "tax extender" deductions and credits – stay tuned for futurity developments.
Self-Employed People
If you lot're self-employed, there are a couple of 2022 tax police changes that could impact your lesser line. Starting time, a central dollar threshold on the xx% deduction for laissez passer-through income was increased for 2022. Self-employed people (along with owners of LLCs, Due south corporations and other laissez passer-through entities) can deduct 20% of their qualified business income, subject to limitations for individuals with taxable incomes in excess of $340,100 for articulation filers and $170,050 for others ($329,800 and $164,900, respectively, for 2021).
Second, tax credits that were allowed for self-employed people who couldn't work for a reason that would have entitled them to pandemic-related ill or family leave if they were an employee have expired and aren't bachelor for the 2022 tax yr.
Manor & Souvenir Taxes
The lifetime estate and gift tax exemption for 2022 jumped from $11.seven meg to $12.06 million — $24.12 million for couples if portability is elected by timely filing IRS Form 706 after the death of the first-to-die spouse.
The special manor taxation valuation of real estate also increases for 2022. For the estate of a person dying this year, upward to $one.23 meg of farm or business real estate tin can receive discount valuation (upwardly to $1.19 one thousand thousand in 2021), letting the estate value the realty at its current use instead of off-white market value.
More than manor tax liability qualifies for an installment payment tax break, too. If 1 or more closely held businesses make upwards greater than 35% of a 2022 manor, every bit much every bit $656,000 of tax tin be deferred and the IRS will charge only ii% involvement (upwards to $636,000 for 2021).
Finally, the annual gift tax exclusion for 2022 rises from $fifteen,000 to $16,000 per donee. So, you can give up to $xvi,000 ($32,000 if your spouse agrees) to each child, grandchild or any other person in 2022 without having to file a gift tax render or tap your lifetime estate and gift tax exemption.
Source: https://www.kiplinger.com/taxes/tax-law/603037/tax-changes-and-key-amounts
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