Tax Law Changes in 2023, What's New for Filing Your 2022…

Many of the tax law changes for the 2022 tax year may have a minimal impact on your bottom line this year, for better or for worse. There are a couple that may result in a significant difference for some of you that claim dependent children, so I will lead with these.

The Child Tax Credit: This credit has been reduced to 2,000 for each qualifying child (up to age 16) that you claim on your 2022 tax return. For the 2021 tax year, the credit had been increased to 3,600 or 3,000 per dependent child, depending on age. If you took the advanced child tax credit payments in 2021, you may not recognize much of a difference between your 2021 and 2022 bottom line. On the other hand, those of you that did not take the advanced payments may see a significant increase in your tax liability on your 2022 return. The credit is also non refundable as it had been prior to the 2021 rules, which will also mean much smaller refunds for some taxpayers. As for dependents 17 and older, the credit amount is 500.00. For more detailed information on how this may affect you, check out my blog regarding the child tax credit on this web site.

Dependent Care Credit: The credit for your qualifying child care expenses has also been reduced to the pre-2021 amounts. In 2022 returns the maximum amount of child care expenses you may use to calculate your credit is 3,000 for one child and a maximum of 6,000 for two or more children. The credit amount ranges from 35% to 20% of the expenses you paid out, depending upon your income. If you took this credit on your 2021 return, the eligible child care amounts and credit percentages were much higher, so you may expect a much smaller credit on your 2022 return. As with the Child Tax Credit, this credit has been returned to its pre-2021 non refundable status.

Standard Deductions: Most people use the standard deduction which is the amount you are allowed to subtract from your income based on your filing status, before your tax is calculated. Therefore, the increases to the 2022 standard deductions will benefit most everyone, though minimally. The 2022 standard deductions along with the increases are as follows: Single increased by 400 for a total of 12,950, married filing jointly increased by 800 for a total of 25,900 and head of household increased by 600 for a total of 19,400. The dollar value of these increases will depend on your individual tax rate. For example, the increase of 800 for married filers in the 24% margin will save about 192.00 over their 2021 tax liability, while a single filer in the 24% bracket will save 96.00 and a person filing head of household will save 144.00.

Tax Brackets: The tax brackets have been adjusted for inflation, while the rates remain the same at 10%, 12%, 22%, 24%, 32%, 35% and 37%. The income amounts have been adjusted, meaning a portion of your income may be taxed at a lower rate than it had been in the previous year.

Charitable Contributions: There is no longer a deduction for charitable contributions unless you are able to itemize deductions. The 2021 deductible amounts for non itemizers ranged from 300 to 600, depending on your filing status. The dollar value of this deduction would depend on your rate. For example, the 300 deduction for a person in the 22% bracket would have been worth 66.00 vs a value of 36.00 for a person in the 12% bracket.

Educator Expenses: The deduction for out of pocket classroom expenses for educational professionals has been increased from 250 to 300 for the 2022 tax year. The dollar value of this deduction also depends on your individual tax rate. The 50.00 increase to this deduction would have an 11.00 value to someone in the 22% bracket.

Mileage Rates: The deductible mileage allowances for 2022 differ for the first and second half of the year. The allowance for business mileage is 58.5 for the first half of the year and 62.5 for the second half. Medical miles are deductible at 18 cents per mile for the first half and 22 cents for the last half. The charitable mileage amount remains 14 cents for the full year.