The government’s response to COVID affected every aspect of our lives. Some actions restricted freedoms. Other mandates, such as masks and vaccines, tried to slow its spread and reduce illness. The steps I’m most interested in involve taxes and finance, such as emergency funds sent to residents and financial assistance provided via the tax code.
In 2020 and 2021, Congress made the treasury department instrumental in advancing relief checks to citizens. These payments got reconciled on 2020 and 2021’s tax returns. Congress also enacted temporary tax provisions that increased financial assistance to individuals and families. Many were short-lived and expired at the end of 2021. My job is to inform you of tax changes that may impact your financial picture. So, to this end, I’ve compiled a brief list of changes that may affect your 2022 taxes.
2022 Expired Items & Notable Tax Changes
- Child Tax Credit Reduced: The one-year-only increase in the Child Tax Credit expired at the end of 2021. For 2022, the maximum credit reverts to $2,000 per child. For 2021, it was $3,000 per child and $3,600 for children under five. Many may not have noticed the 2021 increase because they received half of the credit in advance monthly payments. The advance reduced tax refunds for many and even caused some to owe taxes.
The age of a qualifying child also changes back to under age 17. In 2021, children under 18 qualified.
In 2021, the credit was fully refundable, meaning you received the entire amount even if you owed no tax. For 2022, the refundable amount maxes out at $1,400 per child.
- Significant Reduction in Dependent Care Credit: The one-year increase in the dependent care credit expired at the end of 2021. For most parents, the credit for 2022 reverts to 20%, even though it starts at 35%. For 2021, the credit was 50%. The income phaseout also returns to the low AGI of $15,000. From here, the credit drops from 35% and reaches 20% when AGI hits $43,000. Additionally, qualified expenses for calculating the credit return to $3,000 for one child and $6,000 for more than one child. For 2021, qualifying expenses maxed at a whopping $8,000 for one child and $16,000 for more than one.
- Charitable Non-itemizer Deduction Gone: For 2021, individuals who did not itemize could add $300 of qualified charitable contributions to their standard deduction. Married couples filing together could add $600. Unless Congress acts, this bonus tax-saver is gone for 2022 and beyond.
- Earned Income Credit Reduced: In 2021, there was a substantial increase in the number of filers without children who qualified for the Earned Income Credit. The lower age limit dropped from 25 to 19, and the upper limit, age 64, got removed entirely. The maximum credit for these individuals also nearly tripled to $1,502. We had a surprising number of clients qualify for this expanded credit – both young and retired working part-time. These changes disappeared at the end of 2021.
A significant change that has not expired is the investment income a filer can earn and still qualify for the Earned Income Credit. Allowed investment income increased to $10,000 (adjusted for inflation) in 2021. The previous limit had been $3,650. The irony of the increase is somewhat amusing. The purpose of the credit is to help struggling single parents make ends meet. At the same time, having $10,000 of investment income represents quite an emergency fund!
- AGI Charity Limit Returns: For 2021, taxpayers could deduct certain qualified charitable deductions on Schedule A (Itemized deductions) up to 100% of their adjusted gross income. For 2022, the limit returns to 60% of adjusted gross income.
- Some Energy Credits Expired: The credit for nonbusiness energy property expired at the end of 2021. I’m primarily referring to the residential energy efficiency credit for qualifying HVAC systems, water heaters, etc. - the one with the $500-lifetime limit that has been around for over a decade (and no one can if they’ve taken it in the past). Also, the Alternative Fuel Refueling Credit for 30% expired at the end of 2021. The most important aspect of this credit was reimbursement of electric vehicle charger installation (up to $1,000) at a primary residence.
At some point, I have a sense these credits will get extended. As of today, however, they have not.
- Mortgage Insurance: The itemized deduction for mortgage insurance premiums expired at the end of 2021. Sorry!
- Reminder - Required minimum distributions from retirement accounts now start at age 72, not 70 ½.
- Child Care Benefit: In 2022, tax-free cafeteria plan deferrals for child care revert to $5,000 from 2021’s $10,500.
This list is not all-encompassing. It contains changes that will impact most individuals and families. Because this is an election year, I hope we don’t see a flurry of last-minute, retroactive tax changes for 2022. Unfortunately, I am not so optimistic about 2023!
As always, thank you for reading my articles. If you need some tax/business training or information, please check out OvernightAcountant.com. Need some help with your taxes? You can reach me through RealEstate-TaxPro.com.
All courses and articles are for informational purposes only and do not constitute tax advice. Taxes are complicated - do not act on course information without consulting a professional. Always refer to treasury regulation before making any tax decision. Read the full disclaimer.