Back to Normal Applies to Tax Law, Too
by Megan Moran, CPA, Wiss & Company LLP –
December 5, 2022
“Back to normal” has become a commonly used phrase as many aspects of life revert to pre-pandemic ways, and it is also the best way to describe some of the individual tax law changes for 2022 since these changes are simply reverting to the law prior to the start of the pandemic. There are four credits and deductions with key changes to keep in mind through individual year-end tax planning and for the upcoming tax season.
Child Tax Credit
The Child Tax Credit was expanded in 2021, allowing taxpayers to claim $3,000 per child for children aged 6 to 17 and $3,600 for children under age 6. The credit was fully refundable, and many taxpayers received a portion of their credit through advance payments that needed to be reported on their 2021 tax return. After it’s expansion in 2021, the child tax credit changes were not renewed by Congress for 2022. Because of this, the rules for claiming the Child Tax Credit are reverting back to the rules used in 2020. These are the following:
- The maximum credit is back to $2,000 per child.
- The age for eligible dependent children is 16 and younger again.
- The minimum earned income to be eligible for the refundable portion of the credit is reinstated to $2,500.
- The credit is only partially refundable, up to $1,500, this year.
- No advanced child tax credit payments were sent out during 2022.
- The credit begins to phase out for taxpayers with adjusted gross income above $200,000 for single filers ($400,000 for married filing joint).
Child and Dependent Care Credit
Similar to the Child Tax Credit, there was significant expansion of the Child and Dependent Care Credit for 2021, and that expansion was not extended to 2022. The maximum credit was increased in 2021 to 50 percent of up to $8,000 in qualified care for one child or dependent and $16,000 for two or more children or dependents. The income threshold was also temporarily raised for 2021, with taxpayers making up to $125,000 being eligible. The changes for 2022 will reduce the benefit many taxpayers receive from this credit.
- Eligible care expenses are limited to $3,000 for one qualifying dependent and $6,000 for two or more qualifying dependents.
- Taxpayers with an adjusted gross income under $15,000 are eligible for the credit of 35 percent of eligible expenses determined above.
- Taxpayers with an adjusted gross income between $15,001 and $43,000 have their eligible percentage decreased one percent for every $2,000 over $15,000. The percentage is not reduced below 20 percent.
- Expenses must be related to dependents under the age of 13 or dependents physically or mentally unable to care for themselves.
Charitable cash contribution deductions were expanded for taxpayers who itemized and taxpayers claiming the standard deduction alike for 2020 and 2021. Taxpayers claiming the standard deduction were able to claim a $300 charitable deduction for cash contributions ($600 for married filing jointly). Taxpayers who itemized their deductions were able to deduct cash contributions up to 100 percent of their adjusted gross income. Those temporary expansions ended with the 2021 tax year though. For 2022, the old rules are back:
- No charitable deduction is available for taxpayers claiming the standard deduction.
- The charitable deduction limitation for cash donations is again 60 percent of the taxpayer’s adjusted gross income.
Earned Income Tax Credit
The Earned Income Tax Credit (EITC) age eligibility and maximum credit were expanded for childless taxpayers in 2021. Taxpayers as young as 19 and taxpayers over age 65 were eligible to claim the EITC in 2021. The maximum credit for childless taxpayers was significantly higher at $1,502 for 2021. Like the other credits and deductions discussed, the eligibility limits and maximum amount of the credit will contract back to pre-pandemic rules.
- The eligible age range for childless taxpayers is back to 25 to 65 years old.
- The maximum credit for childless taxpayers is reduced to $560.
The income eligibility and maximum value of the credit is dependent on the taxpayer’s filing status and number of dependent children. These amounts are adjusted for inflation and can change from year to year.
Megan Moran, CPA, is a senior tax associate at Wiss & Company LLP. She is a member of the NJCPA Emerging Leaders Interest Group.
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