Changes that may reduce your refund
Several tax changes may reduce your refund this year.
Due to the pandemic, Congress passed a tax law that allowed you to take the standard deduction and still take a deduction for contributions. However, that law expired in tax year 2021. Consequently, if you don’t itemize and take the standard deduction cannot deduct your charitable contributions this year.
You may have received $1,400 per person in stimulus last year. Unlike 2020 and 2021, there were no new stimulus payments for 2022, so you won’t receive any stimulus money with your return.
Several tax credits have returned to 2019 levels. You will likely receive a significantly smaller refund than the previous tax year.
Changes include the Earned Income Tax Credit amounts and the Child and Dependent Care Credit going back to pre-COVID levels.
The maximum Earned Income Credit amount nearly tripled for people with no children in 2021. For the first time, the Earned Income Credit was available to both younger workers and senior citizens. There was no upper age limit for claiming the credit if taxpayers had earned income. The Earned Income Credit rules have reverted to the rules before Covid. If you don’t have a qualifying child, you must also be at least 25 or older but under 65, not qualify as a dependent of another person, and lived in the U S for more than half of the year. At least one spouse must meet the age rule.
The Child and Dependent Care Credit returns to a maximum of $2,100 in 2022 instead of $8,000 in 2021. The loss of $6,100 in Child and Dependent Care Credit will have a substantial impact on your refund if you are taking the credit.
However, you may still qualify for temporarily expanded eligibility of the Premium Tax Credit. This refundable credit helps eligible individuals and families pay for their health insurance purchased through the Health Insurance Marketplace. To get this credit, you must meet the requirements. If you purchased through the Health Insurance Marketplace, you would receive a Form 1095-A Health Insurance Marketplace Statement. Form 1095-a must be reported on your tax return. The Premium Tax Credit is claimed using Form 8962.
The IRS has announced that for tax year 2023, there will be annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Information regarding the annual inflation adjustments will be included in future columns.
David Zubler is a tax accountant and Enrolled Agent in East Tennessee, providing tax strategies and representing clients before the IRS and has over 25 years of tax experience. He is the author of six tax books and has shared tax advice on national TV. He is the founder and president of Your Tax Care. The company provides business and tax education, including David’s one-minute tax tip radio recordings at YourTaxCare.com. David can be reached at (865) 363-3019 or contacted by email at firstname.lastname@example.org.