Have you already filed your 2022 tax return? If so, you may have noticed that your refund is lower than it was in 2020 or 2021. As we return to the “new normal” after the COVID-19 pandemic, many tax credits and deductions from the last two years are no longer available in tax year 2022. This may be contributing to a smaller tax refund or a larger balance due.
Here are some of the key differences to keep in mind.
For individuals:
- Economic Impact Payments (EIP): Also known as stimulus checks, EIPs were not issued to taxpayers in 2022. You likely claimed a tax credit on your 2020 or 2021 tax return if you were eligible for a stimulus payment but didn’t receive it.
- Child tax Credits: For 2022, the credit is now worth $2,000 per child, down from $3,000 per child and $3,600 for children under age six in 2020 and 2021. This credit now ends when your child reaches age 16 rather than 17. This could further reduce the amount of credit you receive.
- Child and Dependent Care Assistance Credit: In 2021, this credit was refundable and taxpayers whose adjusted gross income (AGI) was less than $125,000 were eligible for the maximum credit of 50% of eligible expenses paid. In 2022, the maximum percentage dropped to 35%. The full credit is only available to taxpayers with AGI $15,000 or less. The credit is now nonrefundable, meaning it’s limited to the amount of tax you owe.
- Earned Income Tax Credit: This credit has reverted to pre-pandemic rates of 7.65% instead of the increased amount of 15.3% in the last two years. The eligibility ceiling has also decreased to $7,320.
- Charitable contributions for non-itemizers: In 2020 & 2021, a $300 per person deduction was available to taxpayers who made a qualified charitable donation and did not itemize. For 2022, only taxpayers who itemize can deduct charitable donations.
- Employer-Provided Child Care: This year, only $5,000 in employer provided childcare is excluded from your taxable income on the Cafeteria Plan. This is a decrease from the $10,500 that was excluded from income in previous years. This means more of your income is taxable in 2022, which could result in a lower tax refund.
- Healthcare Premium Tax Credit: This is another credit that has reverted to pre-pandemic rules. In the past few years, the credit expanded, allowing individuals on unemployment to qualify. However, in 2022, the eligibility is based on household income in comparison to the federal poverty limit. If you were eligible for the credit before, your eligibility may have changed.
For businesses:
As a business owner, you may also face an increase in taxable income from your business activity. There are a few reasons for this, including:
- COVID-19 Employer Payroll Credits and loan forgiveness (including Employee Retention Credits, Paycheck Protection Program and Paid Sick and Family Leave Credits): During the pandemic, several credits, loans and benefit programs were available to businesses. In 2022, many of those pandemic relief efforts have expired.
- Business Interest Expense Limits: The calculation for the limitation has changed in 2022 and may result in less of a deduction for interest expense.
- Corporate charitable deduction limits: The charitable contribution limit has reverted to pre-pandemic rules. In 2022, corporations are limited to a charitable deduction of no more than 10% of their taxable income. This is down from the 25% limit imposed in 2020 and 2021.
Are you unsure you’re getting your maximum tax refund or feeling surprised by your tax results? That may be a sign that your tax professional isn’t right for you. Padgett’s nationwide network of CPAs and EAs can help, so find a location near you today!