Personal Finance

Key tax benefits for tax year 2022 are changing: Here’s what you need to know

Key tax benefits for tax year 2022 are changing: Here’s what you need to know

On March 11, 2021, the US bailout was signed into law to provide financial relief to millions of Americans. The plan included a third round of stimulus relief and expanded tax benefits that families could claim on their 2021 taxes (taxes introduced in 2022), however, those tax benefits would either return to what they were before the US bailout or expire.

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You may have claimed the tax benefits of the US bailout and may have questions such as:

Here are answers to help you understand how the major tax benefits will change in the upcoming tax season.

What tax benefits change or revert?

  • tax credit for children
  • Child and Dependent Care Credit
  • Received tax revenue
  • Redeem your discount balance
  • Sick and family leave credits for self-employed persons
  • Charitable contribution deduction

Note that under the US bailout, starting with the 2022 taxes (the ones you filed in 2023) if you are self-employed and receive payments for goods and services processed by third-party providers such as Venmo and PayPal, you will now receive Form 1099-K from Third party providers if the amounts processed are over $600, regardless of the total number of transactions. Prior to tax year 2022, third-party service providers issued Form 1099-K to self-employed people with 200 transactions and $20,000 processing.

How does the child tax credit change and how much is it for tax year 2022?

tax year 2021

Under the US bailout, the child tax credit has been expanded in several ways for the 2021 tax year

  • The child tax credit increased from $2,000 to $3,600 per dependent child under age 6 and up to $3,000 per dependent child ages 6 to 17.
  • It was also the first time you could claim the Child Tax Credit for a dependent child who was 17 years old.
  • The credit was also fully refundable – meaning you were eligible for the credit even if you didn’t owe taxes.
  • For the first time, advance payments of half of the child tax credit were issued to each dependent child
  • You are eligible for full credit if your income is less than $150,000 for married couples together and $75,000 if you are single or $112,500 as a head of household.
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tax year 2022

For tax year 2022, the child tax credit reverts to benefits available before the US bailout as follows:

  • Returns up to $2,000 from 2022 to 2025
  • Each dependent child must be under 17 years old
  • Refundable up to $1,400, but no longer fully refundable
  • Advance payments for tax year 2022 have not been issued
  • The credit is available if you earn up to $200,000 and up to $400,000 if you are married and sign up.

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How is the Child and Dependent Care Credit changed for tax year 2022?

tax year 2021

Under the 2021 US Bailout Act, massive changes were made to extend the Child and Dependent Care Credit to only 2021 taxes (the taxes you introduced in 2022). The 2021 tax year changes included:

  • The percentage and limits for childcare expenses have changed, so you can take a credit of up to 50% of $8,000 ($4,000) in childcare expenses for a single child under 13, a spouse, incapacitated parent, or other dependent so you can From work and up to 50% of $16,000 in expenses ($8,000) if you have two or more dependents.
  • The credit was refundable if you lived in the US for more than half the year. This means that even if you don’t owe any taxes, you can still get all the credit in the form of a refund.
  • The 2021 Child and Dependent Care Credit started to phase out when Adjusted Gross Income (AGI) reached more than $125,000. With an AGI of $125,000 or less, the credit equals 50% of eligible childcare expenses. The percentage of credit for AGI fell by more than $125,000, and the entire credit for adjusted gross income of more than $438,000 was phased out.
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tax year 2022

For tax year 2022, the Child and Dependent Care Credit is adjusted back to the pre-2021 provision and goes back to:

  • Up to 35% of $3,000 ($1,050) of child care expenses for a dependent child under age 13, a disabled spouse or parent, or other dependent until you can work or find employment. If you have one or more dependents, the credit will be up to 35% of the $6,000 ($2,100) expenses.
  • Credit for entries over $15,000 will be reduced

How is the earned income tax credit changed for tax year 2022?

tax year 2021

The federal income tax credit has been expanded to:

  • Childless workers and triple the credit limit for childless.
  • Eligibility has also been extended to a broader range of applicants, allowing childless taxpayers to qualify if they are over 65 or between the ages of 19-25.

tax year 2022

  • Age requirements are back. Childless taxpayers must be 25 or under 65 to claim the credit
  • Previous year’s income cannot be used to help you qualify for the Earned Income Tax Credit

Note, the amount of the Earned Income Tax Credit is adjusted for inflation each year and will be $6,935 with three or more children in tax year 2022 ($6,728 for tax year 2021).

Was tax year 2021 the last year I could claim a refund deduction?

If you qualify for the third stimulus of up to $1,400 for you or your dependent child (including adult dependents) and have not received your stimulus payment, you may have been able to claim the refund deduction on your 2021 taxes, but the refund credit will not be available in taxes in 2022.

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Was tax year 2021 the last year I could claim sick and family leave credits for self-employment?

The US bailout extended the refundable tax credits for sick leave and family leave through tax year 2021 for both self-employed and eligible small business owners, but the credit expires after tax year 2021.

Can I still deduct up to $300 in cash donations if I claim the standard deduction?

tax year 2021

The COVID exemption is extended through the 2021 tax year and allows you to deduct up to $300 in monetary donations ($600 for joint registration) from your 2021 taxes if you claim the standard deduction.

tax year 2022

For tax year 2022, you can no longer claim the cash donation deduction of up to $300 ($600 to apply for marriage together) if you claim the standard deduction. If you can itemize your deductions, you will still be able to claim your charitable deductions.

Do you still need to file 2021 taxes? You still have plenty of time to file before the extended tax deadline of October 17, 2022, but don’t forget to take advantage of these expanded tax benefits for tax year 2021 that either go back to lower amounts or expire.

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