Just like that, it’s tax season again. As you gather up all your receipts and forms, keep these important changes for tax year 2022 in mind for when you file your taxes in 2023.
“We are going back to ‘normal’ (before COVID-19) for many individual tax credit and deduction items in 2022,” Nicole DeRosa, senior tax manager at Wiss & Company LLC, says. “Taxpayers will see fewer refundable tax credits, which will potentially result in less of a refund or more of a balance due,” she says.
These are the important tax changes for 2022:
Child Tax Credit Decrease
The America Rescue Plan increased the CTC in 2021 and made it fully refundable. It went from $2,000 per child up to:
— $3,600 for children up to the age of 6.
— $3,000 for children between the ages of 7 and 17.
In 2022, the CTC is expected to return to its previous nonrefundable status and will be reduced to $2,000 per qualifying child,” Andrew Griffith, certified public accountant, says. It will also once again be limited to dependents under the age of 16.
Earned Income Tax Credit Decrease
The EITC has also been decreased for filers with no qualifying children. Eligible taxpayers without children who received a $1,502 EITC in tax year 2021 will receive just $560 in 2022. The EITCs for filers with children aren’t decreasing — they’ve increased slightly to account for inflation.
Child and Dependent Care Credit Decrease
If you pay for the care of a qualifying person in order to work, you can still receive a credit for some or all of your expenses. The IRS, however, has significantly reduces the child and dependent care credit cap this year. It dropped from a maximum of $8,000 in tax year 2021 to a maximum of $2,100 in 2022. “It’s also expected to return to its nonrefundable status,” Griffith says.
[Read: What Is the Child Tax Credit?]
Charitable Deductions Have Changed
Another tax provision that went into effect during COVID-19 was the ability to take an above-the-line charitable donation tax deduction. In other words, you could take the standard deduction and claim an additional deduction for an amount you donated to charity. Single filers could deduct up to $300 and married couples filing jointly could deduct up to $600.
“For the 2022 tax year, the charitable donation deduction that lowered the adjusted gross income calculation is not expected to exist,” Griffith says. “Related to this, the previously allowed 60% of AGI deduction for charitable donations is expected to return to a maximum value of 50% of AGI,” he says.
Clean Vehicle Credit Eligibility Rules Change
If you bought a new electric vehicle after August 16 in 2022, it must have undergone final assembly in North America to qualify for the $7,500 credit. The IRS added this requirement midyear as part of the Inflation Reduction Act of 2021.
Form 1099-K Changes Postponed
One of the most talked about changes for tax year 2022 is the new reporting requirement for third-party settlement organizations like PayPal, Venmo and Cash App. Previously, TPSOs were required to file Form 1099-K only if customers processed at least 200 transactions and received $20,000 or more in payments.
The new law removes the transaction requirement and requires Form 1099-K for any account holder who receives at least $600 in payments for goods and services. As of Dec. 23, 2022, however, the IRS delayed implementing the new law until tax year 2023 Although it’s no longer mandatory for 2022, you might still receive Form 1099-K as TPSOs prepare for the upcoming change.
Other Tax Changes for 2022
In addition to these new tax updates, the IRS has ramped up its staff. “With the IRS increasing its workforce by 87,000 new agents, audits will be more likely to happen. Americans need to understand their tax implications and do what they can to avoid potential audits,” Richard Lavina, CPA and CEO of Taxfyle, says.
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Tax Changes for 2023: Say Goodbye to Many COVID-19 Credits and Deductions originally appeared on usnews.com