While you may still be working from home, when it comes to COVID and taxes, it’s returned to “business as usual.” Both 2020 and 2021 saw numerous tax provisions designed to help families and businesses through the pandemic; however, most tax law changes expired Dec. 31, 2021. Despite returning to the status quo, you may still want to consult your tax adviser or CPA over the summer to prepare for the tax law changes and updates for the 2022 tax year. Having a mid-year review can help ensure you are on track or provide time to make any changes to improve your tax situation.
The standard deductions affecting many taxpayers, were increased for 2022 to $25,900 for married filing jointly and $12,950 for single filers. The income tax brackets for 2022 are also slightly wider; however, the tax rates remain unchanged.
Affecting most families, both the Child Tax Credit and the Child and Dependent Care Credit revert to their pre-2021 structures. The Child Tax Credit is down to $2,000 per child under age 17 with no advance monthly payments. The Child and Dependent Care Credit is for 20% to 35% of allowed expenses of up to $3,000 for one child/dependent and $6,000 for more than one. The maximum non-refundable credit will only be allowed for families making less than $15,000 a year in 2022 (instead of $125,000 per year).
Also gone in 2022 is the “above-the-line” deductions of up to $300 charitable cash contributions ($600 for MFJ) that were available to taxpayers who claimed the standard deduction. Furthermore, those who itemize charitable deductions will see a reinstated 60-percent-of-adjusted-gross-income limit on cash contributions this year.
New for 2022, third-party settlement organizations like PayPal and Venmo will issue Form 1099-K to anyone receiving more than $600 in payments for goods and services, regardless of the number of transactions—a stark difference from the previous threshold of $20,000 in gross payments and more than 200 transactions. While this change is to aid the reporting of income for those working in the gig economy, online sellers, independent contractors, and other self-employed individuals, this may also affect those who use these services for selling personal items at a loss or receive payments as reimbursements. A CPA can help plan for this reporting.
Those who have health savings accounts will see a nominal increase in contribution limits. Families who contribute to a dependent care flexible spending account will be subject to the pre-2021 annual contribution limit of $5,000.
Other changes in 2022 include updated tables that account for longer life expectancies when calculating required minimum distributions, increased employer-sponsored retirement plan contribution limits, a larger foreign earned income exclusion, and a higher Social Security annual wage base.
As these are just a few changes taxpayers will see this year, “business as usual” still means plenty of modifications and planning opportunities.