While 2022 might have seemed like a quiet year for tax legislation, some significant changes were made—and these could impact this year’s tax season. Causes of these changes include expiring legislation, inflation adjustments, and new laws. While the COVID-19-relief stimulus checks and generous tax credits of 2020–2021 are in the dustbin of accounting history, new legislation provides tax breaks for making climate-related home improvements and purchasing electric vehicles. Here are some things to keep in mind as you prepare your 2022 tax returns.

Expired legislation

Child Tax Credit (CTC)

The year 2021 saw significant changes to the federal Child Tax Credit (CTC), including higher credit awards ($3,600 for each child under age six; $3,000 for each child ages six to 17) and advance payments (monthly credits of $300 per child under six and $250 per child ages six to 17). Unfortunately, all good things come to an end, and 2021’s increases in the CTC have not been extended. The maximum credit per child reverted to $2,000 for dependents under age 17, and there are no advance payments. The credit is available for taxpayers with income of up to $200,000 for single or head-of-household taxpayers and $400,000 for married couples filing jointly.

Child and Dependent Care Credit

As with the CTC, 2021’s enhancements to the Child and Dependent Care Credit weren’t extended in 2022. The credit is now 35% of eligible expenses ($3,000 for one child, $6,000 for more than one child) spent in caring for a child under 13, a disabled spouse, or a dependent parent. For taxpayers with more than two dependents, the credit is now 35% of cost, or $6,000 for both dependents. Note that once your income tops $43,000 in adjusted gross income, the percentage drops from 35% to 20%.

Earned Income Tax Credit (EITC)

Enhancements made to the EITC in 2021 were not extended in 2022. In 2021, more taxpayers without children were able to claim and receive a higher EITC. The old requirement that a taxpayer must be between 25 and 65 to claim the EITC has now been reinstated. In 2021, taxpayers as young as 19 could claim the EITC, and there was no upper age limit. The minimum credit amount—a refundable credit for low- and moderate-income workers—also dropped in 2022. The EITC now ranges from $560­ to $6,935, depending on a taxpayer’s filing status, income, and number of children. In 2021, the range was from $1,502 to $6,728.

Stimulus checks

The federal government did not issue COVID-19-relief stimulus checks in 2022. In 2020 and 2021, Congress passed three major COVID-19-relief packages, totaling $931 billion in stimulus payments for individuals earning less than $75,000 ($150,000 for married couples filing jointly).¹ These three bills’ provisions were not extended into 2022 (although some taxpayers may still be eligible to receive stimulus funds, if they did not claim them on last year’s tax returns).

The above-the-line deduction for charitable contributions—$300 for single taxpayers, $600 for married couples filing jointly—was discontinued for 2022. The previous rule allowed filers who did not itemize deductions to deduct donations to public charities directly from their adjusted gross income (AGI). Also, the 60% AGI limit for charitable donations was reinstated.

Donations

The above-the-line deduction for charitable contributions—$300 for single taxpayers, $600 for married couples filing jointly—was discontinued for 2022. The previous rule allowed filers who did not itemize deductions to deduct donations to public charities directly from their adjusted gross income (AGI). Also, the 60% AGI limit for charitable donations was reinstated.

Inflation-adjusted tax considerations

Marginal tax rates

The top tax rate remains 37% for single taxpayers with annual income greater than $539,900 ($647,850 for married couples filing jointly), representing an increase in income threshold (from $523,600 and $628,300, respectively) since last year. The lowest tax rate is 10% for single taxpayers with income of $10,275 or less ($20,550 for married couples filing jointly), up from $9,950 and $19,990, respectively, in 2021. There are five other inflation-adjusted marginal rates for single taxpayers that took effect in 2022:

• 37% for income over $539,900 ($647,850 for married couples filing jointly)
• 35% for income over $215,950 ($431,900 for married couples filing jointly)
• 32% for income over $170,050 ($340,100 for married couples filing jointly)
• 24% for income over $89,075 ($178,150 for married couples filing jointly)
• 22% for income over $41,775 ($83,550 for married couples filing jointly)
• 12% for income over $10,275 ($20,550 for married couples filing jointly)

Standard and itemized deductions

For single taxpayers, the standard deduction increased by $400, to $12,950, over 2021’s deduction; for married couples filing jointly, it increased by $800, to $25,900. As has been the case since 2017’s Tax Cuts and Jobs Act, there is no limit on itemized deductions for 2022 tax returns.

Standard deductions

Alternative minimum tax (AMT)

The AMT exemption amount in tax year 2022 for single taxpayers increased to $75,900 and begins to phase out at $539,900 (up from $73,600, phasing out at $523,600). The exemption is now $118,100 for married couples filing jointly, phasing out at $1,079,800 (up from $114,600 for married couples filing jointly, phasing out at $1,047,200).

Other inflation-adjustment changes

Business mileage rates

Deductible business mileage in tax year 2022 had two rates: 58.5 cents per mile for January–June and 62.5 cents per mile for July–December. Note that in 2023 the rate is now 65.5 cents per mile.

Social Security wage limit

The limit is $147,000 for 2022 (it will increase to $160,200 in 2023). The Medicare surtax starts at $200,000 for single taxpayers and $250,000 for married couples filing jointly. These thresholds are not adjusted for inflation.

Education expenses

Each K–12 teacher can deduct $300 (up from $250 total) for unreimbursed trade or business expenses, which include books, supplies, and items for preventing COVID-19 transmission.

Estate and gift tax

The federal lifetime exemption has increased to $12,060,000 per person for 2022, up from $11,700,000 for 2021. The annual gift exclusion was $16,000 (up from $15,000)in 2022; it increased to $17,000 in 2023.

New legislation

Informational reporting

Businesses are required to file forms like 1099-NEC, 1099-MISC, and 1099-K for 2022 payments they made to any independent contractor (e.g., consultants, suppliers, landlords, and attorneys) if that contractor’s annual compensation from the business totals $600 or more. For 2022 returns, taxpayers must report income over $600 that they received via electronic platforms like Venmo or PayPal; before, the threshold for reporting such earnings was $20,000 of income earned through 200 or more electronic transactions. Unfortunately, these forms do not make any provision for sales returns, fees, or adjustments, placing the burden on taxpayers to report these income amounts with the corresponding expenses on their tax return.

Energy credits

President Biden signed the Inflation Reduction Act into law on August 16, 2022. Among climate tax breaks, it increased residential energy credits from 26% to 30% of the cost of solar, geothermal, biomass and fuel-cell power (water heaters are eligible, roofs are not). This credit will fall to 26% in 2033 and to 22% in 2034; it will phase out in 2035.

Clean-vehicle credit

Regulations for this credit are very confusing: To be eligible for the credit on your 2022 tax return, an electric vehicle’s final assembly must occur in the U.S. (you can check electric-vehicle assembly location here). The vehicle’s battery components must be manufactured or recycled in the U.S. If you entered into a contract to buy a new electric vehicle before August 16, 2022, you can still claim the credit based on the old rules.

Secure 2.0 Act

This act had over 90 provisions with many effective in 2023.  Refer to our webinars for in depth analysis of the act.  A few highlights include the delay of required minimum distributions until age 73 for individuals born in 1951-1959 and 75 for individuals born in 1960 or later.  There were many retirement changes such as Simple IRA and SEP IRAs will accept Roth contributions.  Company matches can also be pre-tax or after-tax in 2023, but the company must amend their plan document for this change to take effect.  In 2024, individuals earning over $145,000 will be required to make catch-up contributions to the Roth.  Also in 2024, employers can use employee payments on federal student loan to calculate the employer match.  One provision that still needs some guidance is the ability to move unused 529 plans to a Roth IRA.  There are many conditions including having the account open for 15 years, the beneficiary has to have earnings in the year of the rollover and you are limited to the IRA contribution maximum each year with a lifetime max of $35,000.

Taking full advantage of climate-related tax breaks is likely to require patience and planning, because the new legislation is somewhat complex. Changes to the EITC and CTC will disproportionally impact low- to moderate-income taxpayers, who were the main beneficiaries over the past two years. Many individuals will see a decrease in their refunds for 2022 tax returns.  Lastly, inflation-adjusted changes to the standard deduction, to marginal tax rates, or to the AMT will likely affect most taxpayers. To ensure that you’re taking advantage of tax-law changes as you prepare your 2022 returns, please consult your financial advisor or CPA.

For a complete schedule of 2022 tax filing dates please refer to our calendar.