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(Trends Wide) — Official tax filing season begins on Monday, January 23, and it may hold some surprises for your wallet.
So whether you want to file your 2022 federal income tax return right away or wait until the last minute, now is a good time to get an idea of whether you’ll owe the IRS more money or likely get a refund. and if so, how much.
Here’s why: the amounts may be very different from last year. Several popular tax breaks have changed since you filed your 2021 return. And your financial situation may have changed, too, like if you sold any assets or were laid off.
If it turns out you have to pay additional money to the IRS and need some time to come up with the funds, “you can still file your return, but schedule your payment for April 18,” said Kathy Pickering, H&R Block’s tax director. (If you pay after April 18, you may be subject to penalties and interest.)
Why Some May Get a Less Refund
Most Americans get a federal tax refund every year, and for many, that refund is a big financial boon.
But that benefit may be less this year, in part because of the expiration of some tax-exempt enhancements that were in effect the previous tax year.
Child Tax Credit: for tax year 2022, parents can claim a maximum child tax credit of $2,000 for each child up to age 16 if their modified adjusted gross income is less than $200,000 ($400,000 if filing jointly). Above those levels, credit begins to disappear.
And the portion of the credit treated as refundable, meaning it’s paid even if you don’t owe any federal income tax, is capped at $1,500, and is only available to those with earned income of at least $2,500. .
But that’s well below the expired enhanced child tax credit that was in effect for 2021. Among other things, it was fully refundable with no earned income requirements, Pickering said. And the enhancements allow parents to claim a maximum credit of $3,600 for each child under age 6 and up to $3,000 for children ages 6 to 17.
Child and Dependent Care Credit: the tax credit that working parents use to help pay for child care or that filers claim to pay for adult dependent care is also noticeably lower for tax year 2022. That’s because Congress allowed 2021 conditions will expire.
On your 2022 return, for example, you can claim a maximum of 35% of up to $3,000 in expenses for one person, or up to $6,000 in expenses for two or more people. It’s a non-refundable credit, which means you can only claim it if you have a federal income tax liability to offset.
For the 2021 tax year, by contrast, the credit was fully refundable and worth a maximum of 50% of up to $4,000 in expenses for one person or up to $16,000 for two or more.
This is the big difference, Pickering said. This year, if you have a child or dependent, you can only get a maximum credit of $1,050 ($2,100 for two or more). By contrast, last year your credit would have been $4,000 (or $8,000 for two or more).
Earned income tax credit for people without children: The EITC, which is a refundable credit, has been a way to financially help low- and moderate-income workers (defined in 2022 as those with earned income of less than $59,187), and especially taxpayers with children.
The EITC is also available to workers without children who qualify under the conditions. But the amount of the credit for someone in this group is just $560 for 2022. That’s almost $1,000 less than the $1,502 they were allowed to claim in 2021 as a result of a one-year upgrade that was part of the American Rescue Plan.
Charitable deductions: To account for itemizing your 2022 deductions that include charitable contributions, they must exceed the standard deduction of $12,950 for single taxpayers or $25,900 for married filing jointly.
Most taxpayers do not itemize. That generally means that the charitable contributions they made during the year are not reported on their returns because they were included in the standard deduction.
But for tax years 2020 and 2021, taxpayers were allowed to take what’s called an above-the-line deduction for charitable contributions of up to $300 ($600 if married filing jointly) in addition to the standard deduction.
However, that deduction above the line has expired.
Severance payments: if you were laid off last year and received a lump sum severance pay, that money will be taxed in 2022. So if it happened at the end of the year, that can take your 2022 income to a higher level, which would also happen, For example, if you receive a one-time bonus..
Or, if you received unemployment benefits, make sure the state withheld taxes on those payments. Otherwise, that could mean you might have to send a check to the IRS, Pickering noted.
Ways to potentially increase your refund or reduce your 2022 tax bill
Tax year 2022 is over, but there may still be some things you can do now to increase the money you receive from the IRS or reduce the amount you must pay.
Review last year’s statement: While many tax breaks are less generous now, check your 2021 return to make sure you claimed all of the enhanced benefits you were eligible for, Pickering said.
If you didn’t claim them, “file an amended return for 2021,” he suggested.
Use your capital losses: If you sold assets in 2022 at a gain, you will have to pay taxes on that gain. Unless you have sold other assets with a loss equal to or greater in size than your gain. Your losses can offset your gains dollar for dollar. And if you still have losses left over after doing that, you can also apply them against $3,000 of your ordinary income for 2022. Any excess losses beyond that can be used in future tax years.
If you only recorded capital losses this year, you can still offset your income up to $3,000 and roll over the rest.
These loss rules also apply to cryptocurrency losses.
Make a contribution to an IRA account: you can still make contributions in 2022 to an IRA through April 18, 2023. The annual limit on those contributions is $6,000 ($7,000 if you’re age 50 or older).
Your contributions may be deductible if you make them to a traditional IRA account. How much will be deductible depends on two things: whether you have access to an employer-sponsored plan at work, and your modified adjusted gross income.
To get the full deduction, neither you nor your spouse can be covered by a retirement plan at work. Or, if you have access to a workplace plan, you can still take the full deduction if your modified AGI is $68,000 or less ($109,000 or less if you’re married filing jointly).
But if you have access to a plan and your income is higher, the math is different. You can get a partial deduction if your modified AGI is more than $68,000 but less than $78,000 (more than $109,000 but less than $129,000 if filing jointly).
However, if your income is over $78,000 (or $129,000), you are not eligible for any deductions.
Maximize your health savings account contributions: If you already opened a health savings account last year and are covered by an HSA-eligible health plan, you can still make your 2022 deductible contributions until the April 18 tax filing deadline.
The maximum you can contribute is US$3,650 for individual coverage or US$7,300 for family coverage. Anyone who was 55 or older at the end of December can contribute another $1,000.
