Tax years 2020 and 2021 were unique in the United States due to the Covid pandemic. A number of tax provisions were enacted from 2020 through 2022 in order to assist families suffering from Covid, unemployment and to prop up the restaurant industry, which was battered by labor shortages and higher costs of doing business. Some of these laws have since expired as the pandemic slowly moves into our collective rear-view mirror.

What’s Changed

Child Tax Credits

The child tax credit for 2022 which was previously $3,000 for children ages 6 to 17 and $3,600 for children up to age 5 in 2021 has been reduced to $2,000 for all children up to age 16. In addition, the monthly advance payments of the credit have been repealed.

Child and Dependent Care Tax Credit

The child and dependent care tax credit is now non-refundable in 2022, which means that a taxpayer must have at least as much income tax liability as the credit amount in order to claim it. Also, the credit only applies to expenses up to $3,000 per child or dependent and $6,000 for more than one child or dependent. The full credit will be allowed only for families making less than $15,000 per year and begins to phase out as income exceeds that amount.

Earned Income Credit

The minimum age for a taxpayer without children to claim the earned income credit has been increased from age 19 in 2021 to age 25 in 2022. The maximum age for claiming the credit is now 65, which was not limited by age in 2021. The maximum credit for taxpayers without children has been reduced from $1,502 in 2021 to $560 in 2022. The maximum credit for workers with one child has been increased from $3,618 in 2021 to $3,713 in 2022, from $5,980 to $6,164 for workers with two children, and from $6,728 to $6,935 for workers with three or more children, a 3% increase which pales in comparison to the actual inflation rate which hovered around 8% for the year. Also, the rule allowing taxpayers to use their 2019 income amount if it increased the qualifying income to calculate the child tax credit has been repealed.

Clean Energy Credits

First of all, the former Residential Energy Efficient Property Credit has been renamed the Residential Clean Energy Credit. These credits, which had been phased down to 26% for 2021, have been increased to 30% for tax years 2022 through 2032. The credit applies to expenditures for installing qualifying electric, water heating and temperature control systems that use solar, wind, geothermal, biomass or fuel cell power.

Clean Vehicle Credit

There are numerous changes to the clean vehicle credit that may be confusing and also dictate when the most opportune time to purchase a clean energy vehicle. A stipulation of the existing law, which affects vehicles purchased in 2022, exempts vehicles purchased by manufacturers that have already sold at least 200,000. General Motors collectively and Tesla have already reached that threshold which means for the remainder of 2022 their vehicles are NOT eligible for a clean vehicle tax credit. If consumers wait until 2023 to make their purchase, that restriction will no longer apply. However, other conditions will also impact the availability of tax credits. The new law stipulates that tax credits will NOT be available if any components of the battery are manufactured or assembled “by a foreign entity of concern”.

Stimulus Payments

Stimulus payments, which were used as a tool to fuel the income during covid, will no longer be paid by the government in 2022.

Tax Brackets Adjusted for Inflation

As in past tax years, the income levels determining income tax rates will be adjusted for inflation in 2022, increasing by 3% for each bracket.

Standard Deduction Amounts

The standard deduction amounts, which are available to taxpayers without enough deductions to itemize, have increased from 2021 to 2022 as follows:

• Single taxpayers: from $12,550 in 2021 to $12,950 in 2022
• Single taxpayers over 65: from $14,250 in 2021 to $14,700 in 2022
• Married couples: from $25,100 in 2021 to $25,900 in 2022
• Heads of household: from $18,800 in 2021 to $19,400 in 2022
• Heads of household over 65: from $20,500 in 2021 to $21,150 in 2022

Long-Term Capital Gains Rates

While long-term capital gains tax rates remain the same in 2021 the income thresholds for each rate in 2022 have been increased for inflation as follows:

The 0% rate for individuals with taxable income up to $40,400 in 2021 increases up to $41,675 in 2022, for heads of household up to $54,100 in 2021 increases up to $55,800 in 2022, and for married couples filing jointly up to $80,000 in 2021 increases up to $83,350 in 2022.

The 20% rate for individuals with taxable income up to $445,851 in 2021 increases up to $459,751 in 2022, heads of household up to $473,751 in 2021 increases up to $488,501 in 2022 and married couples filing jointly up to $501,601 in 2021 increases up to $517,201 in 2022.

A 15% rate applies to taxpayers whose taxable incomes fall in between the breakpoints for the 0% and 20% rates.

The 3.8% Medicare surtax remains the same for single people with modified adjusted gross income above $200,000 and for married couples filing jointly with adjusted gross incomes above $250,000.

Teacher Expenses

Teachers and other educators who spend their own money to buy books, supplies and materials may claim a deduction of up to $300 in 2022, an increase from $250 in 2021.

Charitable Contributions

One unique tax law change allowed individuals to deduct charitable contributions up to $300 and married couples filing jointly up to $600, even if they were unable to itemize their deductions in 2020 and 2021. That provision has expired for 2022. Also, those who itemize their deductions were allowed to claim cash charitable contributions up to 100% of their adjusted gross income in 2021. That provision has also been reduced back to 60% of their adjusted gross income in 2022.

Retirement Contributions and Distributions

The maximum contribution limits to retirement and IRA accounts has been increased for 2022.         Contributions to 401(k), 403(b) and 457 plans have been increased from $19,500 in 2021 to $20,500 in 2022, while taxpayers age 50 and more may contribute $6,500 more in catch-up contributions. The phasing out of traditional IRA contributions has been raised in 2022 from adjusted gross income of from $109,000 to $129,000 for married couples filing jointly and $68,000 to $78,000 for single filers.

Contributions to Simple IRA’s have increased from $13,500 in 2021 to $14,000 in 2022, while taxpayers age 50 and more may contribute $3,000 more in catch-up contributions.

The income ceilings for making contributions to Roth IRA accounts has been increased with deductibilityphasing out at adjusted gross income levels from $204,000 to $214,000 for married couples filing jointly and $129,000 to $144,000 for single filers.

For lower income taxpayers the saver’s tax credit is worth up to $1,000 for single filers and $2,000 for married couples filing jointly. To qualify, one must make retirement contributions and have adjusted gross income levels no more than $34,000 for single filers and married couples filing separately, $68,000 for married couples filing jointly and $51,000 for heads of households.

The IRS has reduced the required minimum distributions that must be taken from retirement accounts to account for the longer life expectancy many people enjoy.

Health Savings Accounts

The annual limit for making contributions to health savings accounts has been increased from $3,600 in 2021 to $3,650 in 2022 for individuals and from $7,200 in 2021 to $7,300 for families in 2022, while taxpayers age 50 and more may contribute $1,000 more in catch-up contributions.

Estate & Gift Taxes

The exemption for reporting estate and gift taxes has been increased from $11.7 million in 2021 to $12.06 million in 2022.

The exclusion of income for gifts has increased from $15,000 per person in 2021 to $16,000 in 2022. A little known fact: Families can take advantage of gift-giving up to $64,000 in 2022 without filing a gift tax return. Here’s how: one parent contributes $16,000 to their child and $16,000 to the child’s spouse. The other parent contributes $16,000 to their child and $16,000 to the child’s spouse.

What Stays the Same

Retirement Contributions

Contribution limits to traditional and Roth IRAs remain at $6,000, while taxpayers age 50 and more may contribute $1,000 more in catch-up contributions.

529 Education Plans

529 plans continue to offer ways for parents to finance their children’s college education while the funds grow tax-free. Eligible expenses include tuition, fees, room and board, books, computers and internet fees. The funds can also be used to pay down up to $10,000 in student loan debt. Up to $10,000 per year can also be used to cover K-12 tuition costs.

American Opportunity Tax Credit

The American Opportunity Tax Credit provides a partially refundable credit up to $1,000 and a maximum benefit up to $2,500 per student. It’s only available for the first four years of post-secondary or vocational school for students in pursuit of a degree of other qualifying credential.

Lifetime Learning Credit

The Lifetime Learning Credit provides a maximum benefit of up to $2,000 per year and has no limit on the number of students qualifying per family. The credit applies to post-secondary education and for courses taken to improve job skills.