November 23, 2022

Savor the taste

Savor the taste

These 8 Tax Adjustments May Influence the Measurement of Your Refund Subsequent Yr

8 min read


With the top of the 12 months quickly approaching, now is a superb time to get organized for tax season. Though your federal tax returns aren’t due until April 18, 2023, there have been numerous adjustments over the previous 12 months that might impression your tax refund. And, in case you started a side hustle or freelance gig, you could discover you owe taxes this 12 months.

Lots of the pandemic tax advantages from the previous few years, like the expanded child tax credit, little one and dependent care credit score and stimulus funds ended on the finish of 2021, which may imply your refund will likely be slightly smaller this 12 months.

Relating to taxes, 2022 is the 12 months of the good reset, stated Mark Steber, chief tax data officer for Jackson Hewitt. “A whole lot of issues that had been put into place for 2021, and a few half 2020, will revert again to pre-pandemic years, which may result in refund shock or, extra importantly, balance-due shock.”

As well as, some new rules had been put into place. Third-party cost apps like PayPal, CashApp and Venmo will now be reporting cash earned by freelancers all year long to the IRS. Scholar mortgage forgiveness — if handed — is exempt from federal taxation, however borrowers in some states might owe taxes. And lastly, in case you had any crypto activity in the past year, the IRS desires to find out about it.

There’s quite a bit to cowl, so we’ll stroll you thru probably the most important tax adjustments to organize for this upcoming tax season.

1. The usual deduction for 2022 is greater

It is typical for the standard deduction to increase slightly annually, together with the speed of inflation. To your 2022 tax return, the usual deduction for single tax filers has been elevated to $12,950 (up by $400), and has been bumped to $25,900 for these married submitting collectively (up by $800).

The usual deduction is what most taxpayers with easy tax returns declare to scale back their taxable earnings. In case you obtain a standard paycheck via an employer and are not eligible for a lot of particular deductions or credit, the usual deduction seemingly is sensible for you. When you’ve got bills or particular person deductions you’d quite declare, like self-employment tax breaks, you wouldn’t declare the usual deduction.

2. Revenue tax brackets for this 12 months had been raised

For 2022, income tax brackets were also raised to account for inflation. Your earnings bracket refers to how a lot tax you owe primarily based in your adjusted gross earnings, which is the cash you make earlier than taxes are taken out, excluding itemized exemptions and tax deductions.

Whereas the adjustments had been slight, in case you had been on the backside of a better tax bracket in 2021, you’ll have bumped all the way down to a decrease price in your 2022 tax return.

2022 tax brackets for single filers

Taxable earnings Federal tax price
$10,275 or much less 10%
$10,276 – $41,775 $1,027.50 plus 12% of earnings over $10,275
$41,776 – $89,075 $4,807.50 plus 22% of earnings over $41,775
$89,076 – $170,050 $15,213.50 plus 24% of earnings over $89,075
$170,051 – $215,950 $34,647.50 plus 32% of earnings over $170,050
$215,951 – $539,900 $49,335.50 plus 35% of earnings over $215,950
$539,901 or extra $162,718 plus 37% of earnings over $539,900

2022 tax brackets for taxpayers who’re married, submitting collectively

Taxable earnings Federal tax price
$20,550 or much less 10%
$20,551 – $83,550 $2,055 plus 12% of earnings over $20,550
$83,551 – $178,150 $9,615 plus 22% of earnings over $83,550
$178,151 – $340,100 $30,427 plus 24% of earnings over $178,150
$340,101 – $431,900 $69,295 plus 32% of earnings over $340,100
$431,901 – $647,850 $98,671 plus 35% of earnings over $431,900
$647,851 or extra $174,253.50 plus 37% of earnings over $647,850

3. The expanded little one tax credit score advantages had been reset

Whereas 2021 had a temporary expansion of the child tax credit, together with eligibility for extra dependent kids and providing advance funds, that is not the case in your 2022 taxes.

The CTC has dropped again all the way down to its pre-pandemic quantity — $2,000 per little one or dependent — and is now solely accessible for kids underneath 17 years of age. The credit score, which was absolutely refundable final 12 months, is now solely partially refundable to some lower-income mother and father, and advance funds are now not in impact. (Partially refundable means you may solely obtain a portion of this credit score as a refund, although the complete quantity might be utilized to your tax invoice.)

That stated, it is best to nonetheless declare the CTC in 2022 if eligible — it might assist enhance your refund or might assist offset a tax invoice. And, whereas federal advantages have decreased, some states are offering child tax credit benefits this 12 months and subsequent. 

4. Fewer filers will qualify for the Little one Care and Dependent Tax Credit score

In 2021, the Little one Care and Dependent Tax Credit score additionally obtained non permanent expansions, permitting those that made $125,000 or much less to deduct between 20% to 50% of $4,000 (or $8,000 for folks with a couple of little one) in qualifying little one care bills. It was additionally refundable.

For 2022, this tax break has additionally reverted back to what it was in 2020. Now, mother and father with one little one can solely declare as much as 35% of a most of $3,000 in qualifying bills, for a most quantity of $1,050. Dad and mom with a couple of little one are eligible for up 35% of as much as $6,000 in qualifying bills, for a most quantity of $2,100.

The largest distinction is the earnings qualification. To obtain this credit score in full in 2022, it’s essential to have made $15,000 or much less — a steep drop from 2021’s $125,000 earnings threshold — although households incomes as much as $438,000 will obtain not less than partial credit score.

5. Eligibility for the Earned Revenue Tax Credit score has modified

Final 12 months, extra People had been eligible to say the Earned Revenue Tax Credit score on their 2021 tax returns. This 12 months, the EITC jumps back to its pre-pandemic guidelines.

To your 2022 tax return, the utmost you may declare for the EITC in case you do not need children or dependents is $560, a $942 lower from final 12 months’s most of $1,502. The age necessities have additionally shifted again to the unique guidelines — you have to be between 25 and 65 to qualify.

Nevertheless, the earnings necessities for the EITC and most credit for these with kids have elevated barely as a consequence of inflation. The 2022 earnings thresholds and most credit score data are beneath: 

2022 EITC earnings thresholds (for max credit score)

Variety of dependents Submitting as Single, Head of Family or Widowed Married Submitting Collectively
0 $16,480 $22,610
1 $43,492 $49,622
2 $49,399 $55,529
3+ $53,057 $59,187

EITC most credit score for 2022

Variety of dependents Most credit score in 2022 Most credit score in 2021 Distinction
0 $560 $1,502 $942 lower
1 $3,733 $3,618 $115 improve
2 $6,164 $5,980 $184 improve
3 or extra $6,935 $6,728 $207 improve

6. You might owe taxes on forgiven scholar loans

Whether or not you obtained scholar mortgage forgiveness via the Public Service Mortgage Forgiveness program or in case you’re eligible for debt reduction via President Joe Biden’s scholar mortgage forgiveness plan, when you have any balances forgiven in 2022, you will not owe federal taxes on the canceled quantity. That is due to a provision tucked into the 2021 American Rescue Plan, stopping forgiven post-secondary training loans from federal taxation via 2025. 

Nevertheless, there are a handful of states the place forgiven mortgage balances could also be taxed. IndianaMinnesotaMississippi and North Carolina have confirmed they may tax any scholar mortgage debt reduction in your 2022 taxes. A couple of different states might as nicely, although the small print are nonetheless being hammered out.

And, in case you dwell in one of many states taxing forgiven scholar loans, you could be on the hook for county taxes in your debt reduction, as nicely.

7. The IRS is cracking down on crypto and NFT transactions

Whereas not technically new, for 2022 the IRS is making a extra concerted effort to trace cryptocurrency gross sales and trades. Everytime you promote or commerce your crypto or buy an merchandise with crypto, you set off a taxable occasion. At the moment, crypto is taxed like property, making it topic to short- or long-term capital beneficial properties taxes. This additionally means you may report any crypto losses to assist offset any beneficial properties. Since 2022 noticed a drastic drop within the worth of cryptocurrencies like bitcoin and ethereum, in case you offered or traded your crypto at a loss, you could possibly scale back your tax invoice by reporting your capital loss. The identical goes for NFTs. 

And although the IRS will flag any unreported crypto beneficial properties, in case you do not report a loss that may decrease your tax burden, the IRS will not modify your return in your behalf. “In case you go away it off, it stays off,” stated Steber. “Tax deductible losses out of your digital foreign money exercise do have actual penalties in your tax return, and may prevent actual {dollars}. So I at all times inform individuals, in case you’ve received one thing that you do not absolutely perceive, you actually ought to search out steerage from a skilled skilled tax skilled.”

When you’ve got numerous crypto or NFT exercise, we advocate speaking to a tax knowledgeable. However In case you’d quite deal with your taxes by yourself, try our top picks for crypto tax software to make submitting your taxes slightly simpler.

8. PayPal, Venmo and different third-party apps will report your funds to the IRS

In case you’ve been self-employed or freelancing for a number of years, you seemingly already know that you simply’re required to report your freelance earnings to the IRS. This 12 months, your earnings will likely be even simpler for the IRS to entry, since third-party cost apps are actually reporting your cost exercise to the IRS. 

Whilst you’ll nonetheless must report your earnings like regular, the distinction is, the IRS will have the ability to confirm the quantities you report in opposition to the transactions the cost apps present. So, in case you’re off by $100, the IRS will know.

This new regulation may assist freelancers. Platforms like PayPal, Venmo, Money App, Zelle and others will likely be offering customers with 1099-K forms, which may make reporting your earnings slightly simpler. 

And don’t be concerned — the cash you gifted to your children is protected from taxes. Solely earnings despatched via these third-party apps are topic to taxation.

Irrespective of the way you had been paid, in case you had any self-employment earnings in 2022, Steber recommends working with a tax skilled to ensure you benefit from each eligible tax break. “Self-employed individuals have a few of the most complicated tax returns, and fairly frankly, a few of these profitable tax advantages within the tax code to be careful for,” he stated.

9. Retirement contribution limits elevated

For 2022, the person 401(k) contribution limit increased to $20,500, a $1,000 improve from 2021. In case you’re over 50, you may contribute a further $6,500. The whole contribution restrict, which incorporates your employer’s contributions, is $61,000 for 2022 ($67,500 for these 50 or older). IRA contributions remained unchanged at $6,000 for the 12 months, with a $1,000 further catch-up contribution for these 50 or older. 

Contributions to SIMPLE IRAs were also increased in 2022, rising from $13,500 to $14,000. These over 50 can contribute a further $3,000.

With the top of the 12 months quick approaching, maximize your retirement contributions earlier than the top of December. Nevertheless, when you have an IRA, you may proceed contributing for tax 12 months 2022 till April 18, 2023, subsequent 12 months’s tax submitting deadline.

Extra People may qualify for the Saver’s credit this 12 months, for the reason that IRS elevated the earnings thresholds for 2022. It is price as much as $1,000 for single filers ($2,000 for married, joint filers), so long as you contribute to a retirement account and meet AGI necessities. For this tax 12 months, your AGI should not be over $34,000 for single filers and people married submitting individually, $68,000 for married, joint filers and $51,000 for head-of-household filers.

10. Non permanent charitable donation deductions have ended

Fewer filers could possibly claim charitable donation tax breaks for this tax 12 months. The expanded charitable money contribution advantages that had been provided in 2020 and 2021 have ended. The non permanent suspension of the 60% AGI restrict in 2020 and 2021 is now again, limiting the quantity you may declare in charitable contributions.  

Extra tax recommendation