By Lisa Bakewell
Note: This article was not written by a tax professional. ABMP does not intend the information in this article to be official tax advice. Please consult a certified tax preparer regarding the material in this article to determine if it is applicable to your situation. Since tax laws are fluid in our current economy, please check with IRS.gov for up-to-the-minute information.
Although we haven’t totally divorced ourselves from COVID-19, and life isn’t exactly the way it was pre-pandemic (personally or professionally), the Internal Revenue Service (IRS) feels it’s safe to remove its pandemic-induced financial safety nets. So, what does this mean for you when filing your 2022 taxes?
1. First of all, say good-bye to stimulus payments! Unlike 2020 and 2021, there will be no additional stimulus payments, according to the Internal Revenue Service,1 so don’t expect an additional payment in your 2023 tax refund.
2. Some tax credits will revert to 2019 levels. Several tax credits, including the Child Tax Credit (CTC), the Earned Income Tax Credit (EITC), and the Dependent Care Credit will revert to pre-COVID levels. This means taxpayers will likely receive a significantly smaller refund, according to the IRS, when compared with the previous tax year.2 For more information, visit Credits and Deductions at irs.gov/credits-and-deductions for more details.
3. More people may be eligible for the Premium Tax Credit. According to the IRS, taxpayers may qualify for temporarily expanded eligibility for the premium tax credit. But remember, simply meeting the income requirements does not mean you’re eligible for the premium tax credit. You must also meet the other eligibility criteria.3
4. Personal exemptions are still on hold. As a provision of the Tax Cuts and Jobs Act in 2018, the personal exemption is suspended ($0) for tax years 2018 through 2025.4
5. There’s a cap on tax relief and mortgage interest deductions. State and local income taxes, property taxes, and real estate taxes are capped at $10,000 for the 2022 tax year. And you can only claim a mortgage interest deduction for up to $750,000 in mortgage debt . . . unless you had $1 million of home mortgage debt before December 16, 2017. If that’s the case, you are grandfathered into the higher mortgage interest deduction.5
6. You can’t deduct charitable contributions if you don’t itemize deductions. During COVID, taxpayers were able to take up to a $600 charitable donation tax deduction on their tax returns. However, for 2022, this deduction will return to pre-COVID rules, which do not allow those who take a standard deduction to make an above-the-line deduction for charitable donations.6
7. Deductions for charitable donations are not as generous as they were in 2021. For 2022, the annual income tax deduction limits for gifts to public charities is 30 percent of the adjusted gross income (AGI) for non-cash contributions (if held for more than one year) and 60 percent of the AGI for cash contributions.7
8. Standard deductions rose slightly. For tax year 2022, the standard deduction for married couples, filing jointly, rose to $25,900—an increase of $800 from tax year 2021. For single taxpayers and married individuals who file separately, the standard deduction rose to $12,950 (from $12,550). And, for heads of households, the deduction is $19,400 (up $600).8
9. Itemized deductions are limitless. Since the deduction cap was eliminated in 2018 by the Tax Cuts and Jobs Act, virtually all expenses—related to the operation of your small business—are deductible. These expenses include rent, utilities, insurance, legal and accounting fees, licensing fees, cost of equipment, supplies, and half of your self-employment tax (if applicable), which you will claim on Schedule C.9
10. The standard mileage rate for automobile expenses increased. The standard mileage rates for the use of a car (also vans, pickups, or panel trucks) was 58.5 cents per mile driven for business use from January 1, 2022 to June 30, 2022, up 2.5 cents from the rate for 2021. For the final 6 months of 2022, beginning July 1, 2022, the standard mileage rate for business travel jumped to 62.5 cents per mile. The new mileage rate for deductible medical or moving expenses (available for active-duty members of the military) was 18 cents from January 1 to June 30, 2022, and increased to 22 cents for the remainder of 2022. The rate for charitable mileage expenses was 14 cents per mile for the entire year.10
11. There is still a deduction for qualified transportation and parking deductions. For tax year 2022, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking is $280 per month, up from $270/month for each in 2021.11
12. There are no miscellaneous itemized deductions. Under the Tax Cuts and Jobs Act, taxpayers can no longer claim a miscellaneous itemized deduction for unreimbursed employee travel expenses.12 However, if you fall into one of the categories of employment listed under Unreimbursed Employee Expenses or are an eligible educator as defined under Educator Expenses, you may be eligible to deduct a portion of your expenses.13
13. Medical expenses are still deductible . . . but they must exceed 7.5 percent of your adjusted gross income (AGI) for tax year 2022.14
14. Although IRA contribution limits stagnated, 401(k) account contributions amounts increased. In 2022, IRA and Roth contribution limits remained the same; individuals can contribute up to $6,000 to an IRA, and those who are over 50 qualify to make a catch-up contribution of an additional $1,000. Limits for 401(k) accounts have increased, however, to $20,500. Plus, if you are over 50, you qualify to make an additional catch-up contribution of $6,500.15
15. You can share some of your wealth tax-free. The annual income exclusion for gifts increased from $15,000 to $16,000 for tax year 2022.16
16. Expect changes when the Tax Cuts and Jobs Act expires in 2025. The alternative minimum tax (AMT) will continue to affect mostly households with incomes over $500,000. For 2022, the AMT exemptions are $75,900 for single filers and $118,100 for married taxpayers filing jointly. The phase-out thresholds are $1,079,800 for married taxpayers filing a joint return and $539,900 for all other taxpayers. (Once your income for the AMT hits the phase-out threshold, your AMT exemption begins to phase out at 25 cents for every dollar over the threshold.)17 Also, the estate and gift tax exemption, which is indexed to inflation, rises to $12.06 million for 2022 but is set to expire at the end of 2025, meaning it could be essentially cut in half at that time if Congress doesn’t act.18
17. Be on the lookout for additional 1099-Ks. As a result of the American Rescue Plan, more small business owners will receive at least one Form 1099-K for the 2022 tax year. Previously, third-party providers, called payment settlement entities (PSEs) issued 1099-Ks to business owners who had at least 200 transactions and made at least $20,000 in sales. Beginning with tax year 2022, though, any third-party payments totaling $600 or more that were received via a PSE (such as PayPal, Venmo, Zelle, etc.) will activate a 1099-K form from that vendor and will be considered income by the IRS. So, separate your business and personal PSEs, as automated PSEs cannot distinguish between your business and personal transactions. After all, you don’t want to pay income tax on money a friend paid you for dinner!
18. The top tax rate remains at 37 percent. The top-tier tax rate for individual single taxpayers earning more than $539,900 (or $647,850 for married couples filing jointly) for the 2022 tax year is 37 percent. The lowest rate, 10 percent, is for single individuals earning $10,275 or less, or $20,550 for married couples filing jointly. The other rates are as follows:
- 35 percent for incomes over $215,950 ($431,900 married filing jointly)
- 32 percent for incomes over $170,050 ($340,100 married filing jointly)
- 24 percent for incomes over $89,075 ($178,150 married filing jointly)
- 22 percent for incomes over $41,775 ($83,550 married filing jointly)
- 12 percent for incomes over $10,275 ($20,550 married filing jointly)
author bio
Lisa Bakewell is a full-time freelance writer and editor. Her areas of writing expertise span a multitude of topics. She can be reached at lbakewell@att.net.
Notes
1. IRS, “Steps to Take Now to Get a Jump on Your Taxes,” updated December 8, 2022, irs.gov/individuals/steps-to-take-now-to-get-a-jump-on-next-years-taxes.
2. IRS, “Get Ready for Taxes: What’s New and What to Consider When Filing in 2023,” December 6, 2022, irs.gov/newsroom/get-ready-for-taxes-whats-new-and-what-to-consider-when-filing-in-2023.
3. IRS, “The Premium Tax Credit: The Basics,” updated October 7, 2022, irs.gov/affordable-care-act/individuals-and-families/the-premium-tax-credit-the-basics.
4. IRS, “IRS Provides Tax Inflation Adjustments for Tax Year 2023,” October 18, 2022, irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023.
5. IRS, “Topic No. 503 Deductible Taxes,” updated October 5, 2022, irs.gov/taxtopics/tc503.
6. IRS, “Topic No. 506 Charitable Deductions,” updated January 13, 2023, irs.gov/taxtopics/tc506.
7. IRS, “Topic No. 506 Charitable Deductions.”
8. IRS, “IRS Provides Tax Inflation Adjustments for Tax Year 2023.”
9. IRS, “IRS Provides Tax Inflation Adjustments for Tax Year 2023.”
10. IRS, “IRS Increases Mileage Rate for Remainder of 2022,” June 9, 2022, irs.gov/newsroom/irs-increases-mileage-rate-for-remainder-of-2022.
11. IRS, “Qualified Parking Fringe Benefit,” updated April 25, 2022, irs.gov/charities-non-profits/qualified-parking-fringe-benefit.
12. IRS, “Publication 529: Miscellaneous Deductions,” January 4, 2021, irs.gov/pub/irs-pdf/p529.pdf.
13. IRS, “Publication 529: Miscellaneous Deductions.”
14. IRS, “Publication 502: Medical and Dental Expenses,” January 13, 2023, irs.gov/taxtopics/tc502.
15. IRS, “IRS Announces Changes to Retirement Plans for 2022,” updated September 29, 2022, irs.gov/newsroom/irs-announces-changes-to-retirement-plans-for-2022.
16. IRS, “Instructions for Form 709 (2022),” updated November 10, 2022, irs.gov/instructions/i709.
17. IRS, “Topic No. 556 Alternative Minimum Tax,” updated October 14, 2022, irs.gov/taxtopics/tc556.
18. IRS, “Estate and Gift Tax FAQs,” updated October 18, 2022, irs.gov/newsroom/estate-and-gift-tax-faqs.
