‘A lot of people are going to see less money in their pocket.’ Here are must-know tax changes for 2022

One doable motive for a smaller tax refund is the little one tax credit score and the little one and dependent care tax credit score have been decreased for 2022, defined licensed monetary planner Cecil Staton, president and wealth advisor at Arch Financial Planning in Athens, Georgia.

While each tax credit acquired a short lived increase by means of the American Rescue Plan of 2021, the improved tax breaks weren’t prolonged to this 12 months. “The big picture is a lot of people are going to see less money in their pocket,” Staton stated.

In 2021, the kid tax credit score supplied as much as $3,600 per little one beneath age 6, and as much as $3,000 per little one ages 6 by means of 17, with half accessible through upfront funds. But for 2022, the tax break reverts to the earlier quantity — as much as $2,000 per little one beneath age 17. 

The little one and dependent care tax credit score, which can assist offset the price of care for youngsters beneath age 13 or grownup dependents, has additionally been decreased for 2022.

In 2021, the credit score jumped to as much as $8,000 for one qualifying individual or $16,000 for 2 or extra dependents. However, for 2022, these caps returned to $3,000 and $6,000, for one or a number of dependents, respectively.

If you have acquired funds by means of apps like Venmo or PayPal in 2022, chances are you’ll get Form 1099-Ok in early 2023, which studies earnings from third-party networks.

The type applies to business transactions, resembling part-time work, facet jobs or promoting items, in keeping with the IRS. 

Before 2022, the federal Form 1099-Ok reporting threshold was for taxpayers with greater than 200 transactions price an combination above $20,000. Now, nevertheless, the brink is simply $600, and even a single transaction can set off the shape.

Austin Chau, a CFP and wealth advisor at Menlo Asset Management in Menlo Park, California, stated private transactions like reimbursing your roommate for payments or dinner aren’t taxable.

What’s extra, you will solely owe taxes on income, he stated. For instance, in case you spent $150 on live performance tickets in 2022, and offered them for $200, the $50 revenue is taxable, Chau stated.

While the IRS says you should not obtain Form 1099-Ok for private transfers, consultants say it is doable, and the error might require you to contact the issuer or make changes to your tax return.

Your tax refund may be decrease as a result of it is tougher to declare the charitable deduction in 2022.

Marguerita Cheng, a CFP and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland, stated you will not get a charitable tax break in 2022 in case you do not itemize deductions in your return.   

Congress gave charities a lift in 2021 by permitting single donors to assert a deduction for as much as $300 for money donations or $600 for married {couples} submitting collectively, regardless of whether or not you itemize, stated Cheng, who is also a part of CNBC’s Financial Advisor Council.

However, the tax break wasn’t prolonged for 2022. Now, you will solely profit in case your itemized deductions, together with the tax break for charitable items, exceeds the usual deduction, which is much less widespread. In 2019, nearly 90% of taxpayers used the usual deduction, in keeping with the IRS.