Lots of tax law changes this year! Read on to find out more.
Here are some key changes to the tax code for 2022. Use this information to help manage your tax obligation, a practice that can pay rich benefits if reviewed throughout the year.
Tax brackets and rates
While there is much discussion in Congress and the Executive branch to raise individual tax rates (currently 0% to 37%), to date no legislation is gaining traction….yet. In the meantime, inflation is impacting the income brackets subject to tax. The cost of living calculation is raising the income brackets subject to tax by approximately 3% to 3.8%.
The higher standard deductions are still in place. For 2022, they are:
- Single: $12,950 (up $400)
- Married Filing Joint: $25,900 (up $800)
- Head of Household: $19,400 (up $600)
- Married Filing Separate: $12,950 ( up $400)
- Taxpayers claimed as a dependent: $1,150 (up $50)
Key tax code changes
- Child Tax Credit roll back. The advance payment of one half of this credit and the dollar amount for each qualifying child rolls back to prior year limits (2020) of $2,000 per child. Last year you could earn as much as $3,600 per child.
- Dependent Care Credit qualified expenses now lower. The maximum qualified childcare expenses in 2022 are $3,000 for one child and $6,000 for two or more dependents. The one year expansion of qualified expenses ($8,000 for one and $16,000 for two or more) is now gone.
- 100% meal deductibility. Business meals are typically only 50% deductible. To help aid restaurants recover from the pandemic, you may deduct 100% of qualified meal expense deductions if the meals are purchased at qualified restaurants thru 2022.
- Qualified reporting of receiving digital payments expands dramatically. If you receive more than $600 in payments via third-party platforms and the IRS deems these payments to be business related, you will receive 1099-Ks next January. So if you use reseller platforms, receive digital payments through applications like Venmo, or digitally resell event tickets, expect a more complicated tax return.
- Increase tracking of cryptocurrency transactions. Starting in 2023, there will be more strict reporting requirements of any cryptocurrency transactions handled by brokers and dealers. Please be aware that many of these firms are implementing the changes throughout 2022.
- Mortgage insurance premium deductibility. Unless extended once again, this deduction is back on the shelf for 2022, so no longer deductible.
- Charitable deductions if you do not itemize. If you do not itemize, you can NO LONGER deduct up to $300 in qualified charitable deductions ($600 for married couples).
Outlined here are the major changes for current year tax laws. But stay tuned as there are a number of changes that are being proposed, but seem to stuck in Congressional discussion.