“A lot of people will see less money in their pockets.” Here are the tax changes to know for 2022
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Some tax breaks have been reduced
Certified financial planner Cecil Staton, president and wealth advisor at Arch Financial Planning in Athens, Georgia, explained that one possible reason for a smaller tax refund is the child tax credit and the reduced child and dependent care tax credit for 2022.
While both tax credits received a temporary boost through the 2021 American Rescue Plan, the enhanced tax credits were not extended until this year. “The big picture is that a lot of people are going to see less money in their pockets,” Staton said.
In 2021, the Child Tax Credit provided up to $3,600 per child under 6, and up to $3,000 per child 6-17, with half available via down payments. But for 2022, the tax credit goes back to the previous amount — up to $2,000 for each child under 17.
The Child and Dependent Care Tax Credit, which may help offset the cost of caring for children under 13 or adult dependents, has also been cut for 2022.
In 2021, the credit jumped to up to $8,000 for a single eligible person or $16,000 for two or more dependents. However, for 2022, those caps reverted to $3,000 and $6,000 for one or more dependents, respectively.
You can get a Form 1099-K for third-party payments
If you received payments through apps like Venmo or PayPal in 2022, you may get Form 1099-K in early 2023, which reports income from third-party networks.
The form applies to business transactions, such as part-time work, side jobs, or the sale of goods, according to the IRS.
Prior to 2022, federal reporting Form 1099-K was for taxpayers who had more than 200 transactions totaling more than $20,000. Now, however, the minimum is only $600, and even a single transaction can trigger the model.
Personal transactions like reimbursing a roommate for bills or dinner are not taxable, said Austin Chow, a CFP and wealth advisor at Menlo Asset Management in Menlo Park, California.
What’s more, he said, you will only owe taxes on the profits. For example, if you spend $150 on concert tickets in 2022, and sell them for $200, that $50 profit is taxable, Zhao said.
While the IRS says you shouldn’t receive Form 1099-K for personal transfers, experts say it’s possible, and a mistake may require you to contact the issuer or make adjustments to your tax return.
The charitable deduction is hard to claim
The tax refund may also be lower because it’s harder to claim the charitable deduction in 2022.
You won’t get a charitable tax break in 2022 if you don’t itemize deductions on your return, said Margarita Cheng, CFP Program Director and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.
Cheng, who is also part of CNBC’s Board of Financial Advisors, said Congress gave charities a boost in 2021 by allowing single donors to claim a deduction of up to $300 for cash donations or $600 for married couples who file together, regardless of whether You are separating into items.
However, the tax credit wasn’t extended for 2022. Now, you’ll only benefit if your itemized deductions, including the tax credit for charitable gifts, exceed the standard deduction, which is less common. In 2019, nearly 90% of taxpayers used the standard deduction, according to the IRS.
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