2022 Federal Tax Laws
****THE FOLLOWING IS IMPORTANT INFORMATION
This is an outline of some of the biggest changes to the new tax law that went into effect beginning in 2018 and are still in effect.
The current 7-tier tax bracket will be reduced to four tax brackets. They are as follows:
SINGLE FILERS
10% - Income $0 to $10,275
12% - Income $10,276 and up $41,775
22% - Income $41,776 to $89,075
24% - Income $89,076 to $170,050
32% - Income $170,051 to $215,950
35% - Income $215,951 to $539,900
37% - Income $539,001 and up
MARRIED FILERS
10% - Income $0 to $20,550
12% - Income $20,551 to $83,550
22% - Income $83,551 to $178,150
24% - Income $178,151 to $340,100
32% - Income $340,101 to $431,900
35% - Income $431,901 to $647,850
37% - Income $647,851 and up
This next section is particularly important to your deductions as taxpayers.
STANDARD DEDUCTION:
The standard deduction for married couples filing jointly for tax year 2022 rises to $25,900, up $800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,950 for 2022, up $400, and for heads of households, the standard deduction will be $19,400 for tax year 2022, up $600.
CHILD CREDITS:
The American Rescue Plan, which was enacted in March 2021, provided an increased credit for 2021 only. For 2022's tax filing the credit is back to $2,000 per child. It is available to families with dependent children in the home under the age of 17 and phases out for married couples with incomes above $400,000 and for unmarried parents with incomes exceeding $200,000.
A handful of states are stepping forward and offering further credits. New York has a refundable credit worth $100 per qualifying child or 33 percent of the taxpayer’s allowable federal credit, whichever is greater. New York’s credit is not available to children under the age of 4 years. Also the income limitation is $75,000 (single) and phases out at $200,000 and $110,000 (joint) Income phasing out at $200,000.
CHILD AND DEPENDENT CARE CREDITS:
The American Rescue Plan also made significant improvements to the child and dependent care credit. But, again, the changes only apply to the 2021 tax year (although President Biden wants to make the enhancements permanent).
If you paid a daycare center, babysitter, summer camp, or other care provider to care for a qualifying child under age 13 or a disabled dependent of any age, you may qualify for a tax credit on your 2022 taxes of up to 35% of:
- up to $3,000 of qualifying expenses (for a maximum credit of $1,050) for one child or dependent, or
- up to $6,000 of qualifying (for a maximum credit of $2,100) for two or more children or dependents.
In addition, the full child and dependent care credit will be allowed for families making less than $125,000 a year (instead of $15,000 per year). After that, the credit starts to phase-out. However, all families making between $125,000 and $438,000 will receive at least a partial credit.
RETIREMENT PLANS:
Required Minimum Distributions (RMDs) are in play for 2022. Anyone who is at least 72 years old by the end the year is required to take an RMD for 2021. Also please note that if you have an inherited IRA you may be required to make these distributions as well.
The following are the limits for contributions to retirement plans. The maximum contribution limits for 401(k), 403(b) and 457 plans increase to $20,500, while people aged 50 or older can once again put in $6,500 more as a "catch-up" contribution. The 2022 cap on contributions to SIMPLE IRAs also stays the same at $14,000, plus an extra $3,000 for people age 50 and up.
The 2022 contribution limit for traditional IRAs and Roth IRAs also stays steady at $6,000, plus $1,000 as an additional catch-up contribution for individuals age 50 and up. However, the income ceilings on Roth IRA contributions went up. Contributions phase out in 2022 at adjusted gross incomes (AGIs) of $204,000 to $214,000 for couples and $129,000 to $144,000 for singles (up from $196,000 to $206,000 and $124,000 to $139,000, respectively, for 2020).
Deduction phaseouts for traditional IRAs also start at higher levels in 2021, from AGIs of $109,000 to $129,000 for couples and $68,000 to $78,000 for single filers.
ITEMIZED DEDUCTIONS:
This is the area that had the most dramatic changes from the 2018 tax law. The new law raised the standard deduction and therefore limited or eliminated most taxpayers ability to effectively use itemized deductions. Itemized deductions are things like medical expenses, state and local taxes, mortgage interest, property and personal property taxes and charitable contributions. If these deductions add up to more than your allotted standard deductions then you are allowed to use those to your benefit instead of the standard deduction.
The tax law change eliminated unreimbursed employee job expenses. Therefore any expenses pertaining to work earned through w2 employee income is not deductible anymore.
The following deductions remain:
- Charitable contributions remain but with the increased standard deduction it may discourage taxpayers that normally contribute as they might not get the deduction.
- Property taxes and state and local tax or sales tax. This has been bundled into one and are capped in total at $10,000. This negatively impacts home owners particularly in high taxed regions of the country.
- Mortgage interest but again not for all. This new plan would reduce your allowed deduction to up to two mortgages totaling no more than $750,000. This again punishes those in higher housing markets.
- Student loan interest is still allowed as a deduction up to $2,500 per tax return. Please note however that this deduction is not offered for single filers making more than $85,000 and married filers making more than $175,000
- 2022 taxpayers can deduct qualified, unreimbursed medical expenses that are more than 7.5% of their 2022 adjusted gross income.
The following are the deductions which the 2018 new tax laws eliminated :
- Unreimbursed Employee Expenses - This is of particular interest to those in the freelance workforce. A good example of this is the performing artist. These employees are required to stay up on their craft at their own expense. Some of these are as follows:
- Many of these artists pay an agent at least 10% of their income.
- Most pay 2% to 4% to their union from weekly incomes.
- Tools or musical instruments. Many musicians have anywhere from $20,000 to $200,000 in instrument costs. Also many of these deductions are depreciated over 7 years. At this time it appears that those taxpayers that haven’t exhausted their deductions through depreciation would not recover the remaining deduction.
- Promotional materials and advertising to remain relevant in a short term employment contract market.
- Home Office Expenses
- Required work clothing or uniforms
- Required travel, lodging and food in the required course of their work.
- Tax Preparation fees
- Moving Expenses for Work - The old plan allowed a taxpayer to deduct these expenses if there new job is full-time and the new location is more than 50 miles from their previous location. However the new law that exists eliminates this for all except those in the armed services. It should be noted that this deduction is still allowed for businesses even if they move their business overseas.