Biggest Tax Changes For the 2022 Tax Year
The Inflation Reduction Act is ushering in a number of changes. You’ll want to be up-to-date on these changes this tax filing season. It might seem easy to get overwhelmed by all these rules. Many are beneficial, many are potentially a burden. The tax code as a whole is too large to keep up with every time it’s changed. But, you should do what you can to know the parts of it that will, at least, affect you. Here are some of the changes coming this year that could potentially impact you, both positively and negatively.
Firstly: No new stimulus checks were issued. This means that taxpayers don’t have to worry about receiving letters from the IRS confirming the amount in stimulus checks they receive to file taxes. They also now can’t claim a Recovery Rebate Credit.
Next, the amount of Child Tax Credit (CTC), Earned Income Tax Credit (EITC), Child Care Credit Return, and Dependent Care Credit Return. These numbers all returned to pre-pandemic levels. The enhanced CTC was not extended. And, returns to $2,000 per child dependent for the 2022 tax year, down from the previous year’s $3,600. The other big change to the CTC is that, going forward, it will no longer be refundable. This means that, if it is larger than the tax they owe, taxpayers won’t receive the full credit.
$500 is the maximum amount that single filers with no children can get from the EITC. This is down from last year’s $1,500, when income thresholds were expanded temporarily. Similarly, Child and Dependent Care Credit is now worth up to $2,100, down from the prior year’s $8,000.
Inflation Reduction Act Tax Breaks
The Inflation Reduction Act provided a few new tax breaks that filers could take advantage of in the 2022 tax year. This increased the Residential Clean Energy Credit. Now, you can subtract 30% of the installation cost for solar heating, solar electricity, and other solar products from the home. This is up from the prior value of 26%. Furthermore, the act removed the principal residence restriction. This means that homeowners who installed solar products on their second or vacation homes are also eligible for the credit.
Additionally, we have news for those who bought a new electric vehicle between August 17th, 2022, and December 31st, 2022. You must now show that the vehicle underwent final assembly here in North America to qualify to receive the Qualified Plug-in Electric Drive Motor Credit. This requirement doesn’t apply to vehicles purchased earlier in 2022, before the act was signed.
Homeowners who pay a mortgage insurance premium or for private mortgage insurance can no longer deduct this on their itemized taxes. Lenders generally require mortgage insurance as protection from default for homeowners who put less than 20% down when purchasing a home. This deduction was enacted under Section 419 of the Tax Relief and Health Care Act of 2006. It has since been extended annually. However, it was not renewed for the 2022 tax year and is no longer available to be itemized.
The Cost of Remote Work
Some employers continued remote work into 2022. Is your employer outside of the state you worked from remotely? This might come with implications on your taxes this year.
In 2020 and 2021, some states enacted temporary relief provisions to avoid double taxation of income by two states. Unfortunately, many of those provisions expired at the start of 2022. Some workers unfortunate enough to work remotely while assigned to an office in certain states might find themselves double-taxed and unable to claim a credit for taxes paid to other states.
Lastly, it’s of note that there was a change to the tax deadline this year The tax deadline is typically April 15th, of course. However, since that falls on a Saturday this year, and the next business day, the 17th, is a local holiday over in D.C. that the IRS observes. As a result, tax day will be April 18th.
