The coronavirus threw several monkey wrenches into 2021 tax season—including giving all of us procrastinators an extra month to file! But 2022 tax season will be back to business as usual . . . well, sort of.
Some new things this year include an increase in charitable giving deductions (if you don’t itemize) and the expanded Child Tax Credit (parents, you noticed some extra cash in your bank account, right?).
We’ll dig into both of those changes, plus a few more, a little later. But first, let’s kick things off with the main details you need to know for 2022 tax season:
- The big tax deadline for all federal tax returns and payments is April 18, 2022.
- The standard deduction for 2021 increased to $12,550 for single filers and $25,100 for married couples filing jointly.
- Income tax brackets increased in 2021 to account for inflation.
As for the 2023 tax season, here’s what you’ll want to know when the time comes:
- The standard deduction for 2022 (which will be useful when you file in 2023) will increase to $12,950 for single filers and $25,900 for married couples filing jointly.
- The income tax brackets will also increase in 2022.
But that’s just scratching the surface! Let’s break down the details so you can file your taxes with confidence this year.
Income Brackets and Rates for 2022 and 2023 Tax Season
Here’s a refresher on how income brackets and tax rates work: Your tax rate(the percentage of your income that you pay in taxes) is based on what tax bracket (income range) you’re in.
For example, if you’re single and your income is $75,000, then you’re in the 22% tax bracket. But that doesn’t mean your tax rate is a flat 22%. Instead, part of your income is taxed at 10%, another part at 12%, and the last part at 22%. (We break it down in the chart below.)
For the 2021 tax year, the tax rates are the same—but there are some slight changes to the brackets. Basically, the brackets have been adjusted by a few hundred dollars from 2020 to account for inflation.1 2022 tax brackets also look a little different.
|2021 Marginal Tax Rates||Single Tax Bracket||Married Filing Jointly Tax Bracket||Head of Household Tax Bracket||Married Filing Separately Tax Bracket|
|37%||Over $523,600||Over $628,300||Over $523,600||Over $314,150|
2022 Marginal Income Tax Rates and Brackets
|2022 Marginal Tax Rates||Single/Unmarried Tax Bracket||Married Filing Jointly Tax Bracket||Head of Household Tax Bracket||Married Filing Separately Tax Bracket|
|37%||Over $539,901||Over $647,850||Over $539,900||Over $323,926|
Higher Standard Deductions in 2021 and 2022
When you pay taxes, you have the option of taking the standard deduction or itemizing your deductions—calculating your deductions one by one. Itemizing is more of a hassle, but it’s worth it if your itemized deductions exceed the amount of the standard deduction.
For tax years 2021 and 2022, the standard deduction went up slightly to adjust for inflation.
|Married Filing Jointly||$24,800||$25,100||$25,900|
|Married Filing Separately||$12,400||$12,550||$12,950|
|Head of Household||$18,650||$18,800||$19,400|
Keep in mind that every situation is different regarding taking the standard deduction or itemizing.
Tax Deductions and Credits to Consider for Tax Season 2022
The closest things to magic words when it comes to taxes are deductions and credits. Both help you keep more money in your pocket instead of Uncle Sam’s, but in slightly different ways.
Tax deductions help lower the amount of your income that can actually be taxed. Some deductions are only available if you itemize your deductions, while others are still available even if you decide to take the standard deduction.
Tax credits, on the other hand, are dollar amounts actually subtracted from your tax bill, and there are two types: refundable and nonrefundable. If a credit is greater than the amount you owe and it’s a refundable credit, the difference is paid to you as a refund. Score! If it’s a nonrefundable credit, your tax bill will be reduced to zero, but you won’t get a refund. Still a win!
Here are some deductions and credits you might be able to claim on your tax return:
1. Charitable Deductions
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 extended two charitable giving changes enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The law allows you to deduct up to 100% of your adjusted gross income (AGI), which is your total income minus other deductions you have already taken, in qualified charitable donations if you plan to itemize your deductions.
What if you’re taking the standard deduction? Well, non-itemizers may claim an above-the-line deduction (meaning it is not on Schedule A) of up to $300 ($600 for married filing jointly) for charitable contributions made in cash.
2. Medical Deductions
If you found yourself with hefty medical bills last year, you might be able to find at least some tax relief.
You can deduct any medical expenses above 7.5% of your adjusted gross income (AGI), which is your total income minus other deductions you have already taken. For example, if your AGI was $100,000, you can deduct out-of-pocket medical expenses beyond $7,500 in 2021. But you have to itemize your deductions in order to write off those expenses on your tax return.
3. Business Deductions
If you are self-employed there are a bunch of deductions you can claim on your tax return—including travel expenses and the home office deduction if you use a part of your home to conduct business.
But if you’re one of the millions of workers who were sent home to work remotely, you won’t be able to claim the home office deduction, since it’s reserved for self-employed people only. Sorry!
4. Earned Income Tax Credit
The EITC is a refundable credit designed to help out low- and middle-income households. The maximum adjusted gross income for a single filer with no children is $21,430, while the cap for a married couple with three or more children is $57,414. Depending on your income, your filing status and number of children, the credit could save you anywhere from a few hundred to a few thousand dollars on your taxes. But here’s a crazy stat: About 1 out of 5 eligible taxpayers either don’t claim the benefit on their taxes or don’t file a tax return at all. Don’t let that be you!
5. Child Tax Credit
Got kids? You probably noticed a nice little surprise from the IRS in July: free money! The American Rescue Plan, which was passed in March 2021, bumped the Child Tax Credit from $2,000 to $3,600 for each child under age 6 and to $3,000 for each child 6–17. Rather than waiting until tax time for families to claim this credit, the IRS began sending out a portion of the credit through advance monthly payments ($300 per month for each child under 6 and $250 for each child 6 to 17). The Child Tax Credit is gradually phased out for people with incomes over $150,000 if married filing jointly or $112,500 if filing as head of household.
Checks in the mail are nice, but remember that taking advance Child Tax Credit payments now will reduce the amount you get at tax time. Payments are based on your 2020 taxes, so if your income went up enough in 2021 to start closing in on the phase-out limit for the credit, you might consider opting out of advance payments.
There are plenty of other deductions and credits that might be up for grabs depending on your situation! If you don’t want to miss out on any tax savings, you’ll want to work with a tax advisor who can make sure you’re not leaving anything on the table.
6. Education Credits
Bettering yourself or your children through education is a good thing, and it’s even better when you get a tax break.
The American Opportunity Tax Credit (AOTC) is a partially refundable credit for educational expenses for a student for the first four years of college. You can claim up to $2,500 per student, and if the credit brings your tax liability to zero, 40% (up to $1,000) will be refunded to you.
The Lifetime Learning Credit (LLC) is not refundable and covers up to $2,000 in qualified educational expenses per return. While you can only take advantage of the AOTC for undergrad expenses, you can reap the benefits of the LLC for expenses related to all kinds of educational opportunities—from degree programs to technical classes to improving job skills.
But beware: You can claim both the AOTC and the LLC on your tax return but not for the same student or the same expenses.
The Coronavirus and Your Taxes
Oh, so you thought you would be done with the coronavirus in 2022? Unfortunately, the coronavirus has created a ripple effect that will be felt when you sit down to file your taxes for last year. Here are some things to keep in mind:
As part of the American Rescue Plan Act of 2021, the IRS sent a third round of stimulus checks to millions of Americans—up to $1,400 for individuals and an additional $1,400 for dependents.
The good news is your stimulus check will not count as taxable income. Instead, it’s being treated like a refundable tax credit for 2021. Translation: Your stimulus check will not affect your tax situation or cause you to have a higher or lower refund.
Paycheck Protection Program (PPP) Loans
The 2020 Coronavirus Aid, Relief, and Economic Security Act tried to help struggling small business owners stay afloat by offering them Paycheck Protection Program (PPP) loans. As long as these loans were used on certain business expenses—payroll, rent or interest on mortgage payments, and utilities, to name a few—these loans were designed to be “forgiven.”
In December 2020, the IRS announced that any eligible expenses you paid with money from those PPP loans can be deducted from your taxable income. So that’s a little bit of good news! PPP ended in May 2021, but remember, you’ll have to get your loan forgiveness application approved by the Small Business Administration before you’re off the hook for the amount you borrowed.
After the pandemic stalled a large part of the economy, many Americans found themselves out of work (at least temporarily) and turned to unemployment insurance for help. Though the first $10,200 of unemployment benefits were made tax-free in 2020, that is not the case in 2021. So if you were unemployed in 2021 and did not have taxes withheld from your benefits, plan now to pay taxes on those benefits.
Retirement Plans: 401(k)s, IRAs and More
There were several changes to retirement plans in 2021—and some of those changes could impact your tax bill this year. Let’s tackle each of those changes:
- If you own a traditional IRA, you have to take money out of your account once you reach a certain age. Those withdrawals are called required minimum distributions (RMDs). The good news is the SECURE Act changed the age for RMDs from 70 1/2 to 72. This extra time could lead to significant tax savings for retirees with those accounts since the money that’s taken out of a traditional IRA counts as taxable income.
- The SECURE Act also allows owners of traditional IRAs to keep putting money in their accounts past age 70 1/2 as of 2020. Since the money you put into a traditional IRA is tax deductible, you could lower how much of your income is taxed this year. Just remember: You will have to pay taxes on that money whenever you take it out. Total contributions to all of your traditional or Roth IRAs can’t exceed $6,000 ($7,000 if you’re 50 or older) per year.