Major Tax Changes for 2022: A Comprehensive Guide

The year 2022 brought about significant changes to the tax code, impacting individuals and businesses alike. These changes ranged from the expiration of COVID-related tax breaks to adjustments in tax brackets and contribution limits. This guide provides a comprehensive overview of the major tax changes for 2022, helping you understand how they may affect your tax liability.

Expiration of COVID-Related Tax Enhancements

Many of the tax enhancements introduced during the COVID-19 pandemic expired in 2022. These included:

• Child Tax Credit (CTC): The CTC, which was temporarily expanded in 2021, reverted to its pre-pandemic levels for 2022. This means that the maximum credit amount for children under 6 years old dropped from $3,600 to $2,000, and the credit amount for children ages 6 to 17 dropped from $3,000 to $2,000.

• Earned Income Tax Credit (EITC): The EITC also saw several changes in 2022. The maximum credit amount for workers without children decreased from $1,502 to $560, and the age limit for childless workers to qualify for the credit increased from 19 to 25 (pending IRS confirmation).

• Child and Dependent Care Credit: This credit, which provides a tax break for expenses related to childcare, is no longer refundable for 2022. Additionally, the maximum credit percentage dropped from 50% to 35%.

• Recovery Rebate Credit: The Recovery Rebate Credit, which provided stimulus payments to eligible individuals in 2020 and 2021, was not available for 2022.

Changes to Tax Bracket Income Ranges

The income tax rates for 2022 remained unchanged from 2021. However, the income ranges for each tax bracket were adjusted slightly due to inflation. This means that taxpayers may have moved into a different tax bracket for 2022, even if their income remained the same.

Increase in Standard Deduction

The standard deduction, which is an automatic deduction that all taxpayers can claim, increased for 2022. The new standard deduction amounts are as follows:

• Married filing jointly: $25,900 ($800 increase)
• Single and married filing separately: $12,950 ($400 increase)
• Head of household: $19,400 ($600 increase)

Retirement Account and Health Savings Account Contribution Limits

The IRS also announced changes for tax-advantaged accounts such as retirement plans and health savings accounts (HSAs) for 2022.

• 401(k) Plans: The annual contribution limit for 401(k) plans increased from $19,500 to $20,500.

• HSAs: The annual contribution limit for HSAs increased to $3,650 for individuals and $7,300 for families.

Other Notable Changes

In addition to the major changes listed above, there were several other notable changes to the tax code for 2022, including:

• Bona fide residents of Puerto Rico are now eligible to claim the Additional Child Tax Credit (ACTC) with one or more qualifying children, instead of the previous requirement of three or more qualifying children.
• The gift tax exclusion increased to $16,000.
• The monthly limit for qualified transportation fringe benefits increased to $280.

What Has Not Changed for 2022

It is also important to note that some aspects of the tax code remained unchanged for 2022, including:

• There is still no limit on itemized deductions.
• Marginal income tax rates did not change.
• The Medical Expense Deduction threshold remains at 7.5% of adjusted gross income (AGI).
• Long-term capital gains tax rates remain the same at 0%, 15%, and 20%.

The tax code is constantly evolving, and it is important to stay up-to-date on the latest changes. The major tax changes for 2022 have the potential to impact your tax liability, so it is crucial to review these changes carefully and make necessary adjustments to your tax planning. By understanding these changes, you can ensure that you are meeting your tax obligations and taking advantage of all available tax breaks.