Tax Changes to Know Before Filing Your 2022 Return
New tax legislation, legal guidance, clarifications and other issues mean that tax rules aren’t set in stone. That could be one of the reasons that tax time fills so many people with anxiety.
But knowledge is power. Here are a few IRS changes you should be aware of as you prepare your 2022 tax return. It’s not a complete list, but it’s a start.
Note: A variety of sources, including the U.S. government, offer free tax filing to those who qualify. The free tax software and tax assistance programs are up-to-date with the most recent changes to the tax code.
Standard deduction amounts rise
For tax year 2022, the standard deduction for married couples filing jointly will be $25,900. That’s $800 more than the previous year.
If you’re single, or married and filing separately, the standard deduction will be $12,950 (up by $400). For heads of household, the standard deduction is $19,400 (up by $600).
Higher income thresholds for tax brackets
The income tax brackets that will apply to 2022 taxes are the same as in 2021: 10%, 12%, 22%,24%, 32%, 35% and 37%. However, the income thresholds for each bracket have risen.
- 10% for individual incomes of $10,275 or less and $20,550 for married couples filing jointly, up from incomes of $9,950 or less and $19,900 in 2021
- 12% for individual incomes over $10,275 and over $20,550 for married couples filing jointly, up from incomes over $9,950 and $19,900 in 2021
- 22% for individual incomes over $41,775 and $83,550 for married couples filing jointly, up from incomes over $40,525 and $81,050 in 2021
- 24% for individual incomes over $89,075 and $178,150 for married couples filing jointly, up from incomes over $86,375 and $172,750 in 2021
- 32% for individual incomes over $170,050 and $340,100 for married couples filing jointly, up from incomes over $164,925 and $329,850 in 2021
- 35% for individual incomes over $215,950 and $431,900 for married couples filing jointly, up from incomes over $209,425 and $418,850 in 2021
- 37% for individual incomes over $539,900 and $647,850 for married couples filing jointly, up from incomes over $523,600 and $628,300 in 2021
No above-the-line charitable deductions
During the pandemic, even those who didn’t itemize on their tax returns could claim a charitable donation tax deduction of up to $600. This year, anyone who uses the standard deduction won’t be able to get this so-called “above the line” deduction.
Higher gift tax exclusion
Each year, you can make gifts to individuals without worrying about paying a gift tax as long as those gifts fall below certain dollar amounts. The annual exclusion used to be $15,000 per year per person; after that, you had to pay a gift tax. The limit for 2022 was $16,000, and it rises to $17,000 in 2023. If you’ve been giving money to a child or grandchild, you can give a little bit more.
Changes to dependent care tax benefits
The American Rescue Plan Act temporarily enhanced the credit for child and dependent care expenses. Those changes have expired. So, the dependent care credit will be smaller if you were paying for care for a dependent (including a parent) while you worked.
For example, suppose a parent who lives with you has Alzheimer’s disease, and you need to work or look for work. The cost of an adult day care center or home care for your parent could be eligible for the dependent care credit if your parent qualifies as your dependent.
For tax year 2022, the dollar limit on expenses you can use to figure the credit is $3,000 for the care of one qualifying dependent and $6,000 for two or more. Expenses are then multiplied by a percentage ranging from 20% to 35%, depending on how much you earn. With the lower expense limits, the maximum credit that can be claimed in 2022 is $2,100, which is noticeably smaller than the $8,000 available in 2021.
Another change involves dependent care assistance programs, which are also known as dependent care flexible spending accounts. Participating employers allow you to set aside a certain amount of pre-tax income to pay for dependent care (including care for adults).
Now that the American Rescue Plan changes have expired, you are able to set aside a maximum of $5,000 in a dependent care FSA ($2,500 if married and filing separately).
[ See: How to File a Tax Return for a Parent ]
Traditional and Roth IRA income limit changes
The maximum you can contribute to a traditional IRA or Roth IRA is the same in 2022 as in 2021: $6,000 or $7,000 if you're 50 or older. However, the income ranges to make deductible contributions to a traditional IRA and to contribute to a Roth IRA increased in 2022.
Be aware that you have until April 18, 2023, to make 2022 IRA contributions.
Higher income phase-out ranges for traditional IRA deductions
You can deduct your full contribution to a traditional IRA if neither you nor your spouse are covered by a retirement plan at work. However, if you contribute to an IRA and you or your spouse are covered by an employer-sponsored retirement plan, the amount you can deduct can be reduced if your income falls within a certain range. The deduction is eliminated once your income exceeds that range. For 2022, those ranges have increased.
- For single taxpayers covered by a workplace retirement plan, the phase-out range for deducting IRA contributions is $68,000 to $78,000 in 2022, up from $66,000 to $76,000.
- For married filing jointly taxpayers when a spouse making IRA contributions is covered by a workplace retirement plan, the phase-out range is $109,000 to $129,000, up from $105,000 to $125,000.
- For an IRA contributor without a workplace plan who is married to a spouse with a workplace plan, the phase-out range is $204,000 to $214,000, up from $198,000 to $208,000.
- For married couples filing separately with a workplace plan, the phase-out range remains still $0 to $10,000.
Higher income limits for Roth IRA contributions
To contribute to a Roth IRA, your modified adjusted gross income must fall within a certain range. You can contribute the full amount ($6,000 in 2022) if your modified AGI falls below the lower amount in the range. The amount you can contribute is reduced if your modified AGI falls within the range. And you can’t contribute to a Roth once your modified AGI exceeds the upper bound of the range. The ranges for 2022 have increased.
- For singles or heads of households, the range is $129,000 to $144,000, up from $125,000 to $140,000.
- For married couples filing jointly, the range is $204,000 to $214,000, up from $198,000 to $208,000.
- For married couples filing separately, this category is not subject to an annual cost of living adjustment, so it remains at $0 to $10,000.
Saver’s Credit income limits rise
The income limit for claiming the Saver’s Credit has increased. Also known as the “Retirement Savings Contributions Credit,” it’s a tax credit for those who save for retirement. Depending on your adjusted gross income, the amount of the credit is 50%, 20% or 10% of contributions you made to a retirement account such as an IRA, Roth IRA and 401(k).
To claim the credit, your AGI must fall below $68,000 for married couples filing jointly; $51,000 for heads of household; and $34,000 for singles or married workers filing separately.
Earned Income Tax Credit amounts change
The maximum Earned Income Tax Credit amounts have changed in 2022. You may qualify for this credit if you worked and earned between $16,480 and $59,187 in 2022—even if you do not have children.
- No qualifying children: maximum credit of $560, down from $1,502
- One qualifying child: maximum credit of $3,733, up from $3,618
- Two qualifying children: maximum credit of $6,164, up from $5,980
- Three or more qualifying children: maximum credit of $6,935, up from $6,728
If your household includes a permanently disabled adult child or children, you might be able to claim them even though they are no longer minors. Talk with a tax professional about this credit.
Reporting rules change for Form 1099-K
Maybe you use PayPal to collect earnings from an Etsy store, a tutoring gig or some other side hustle. Or perhaps you’re a caregiver for a retired family member who pays you via Venmo. If you earned more than $600 last year, you’ll be getting a Form 1099-K from the payment platform you use.
You would still have had to report income of less than $600, but the government might not have known about it. That’s because third-party platforms used to send 1099-K forms only to those who had more than 200 transactions per year with an aggregate total of $20,000 or more. But the reporting threshold was drastically lowered as part of the American Rescue Plan Act.
(Note: The law doesn’t apply to money sent as personal gifts or transactions such as a friend reimbursing you for their share of dinner out.)
When you receive the 1099-K, make sure all the information is correct. If it isn’t, get in touch with the company immediately. The IRS cannot correct this form for you; it must be accurate to be considered at tax time.
[ Keep Reading: What to Know About Tax Deadlines for 2023 ]