Filing your taxes for 2022: why your refund could be lower


The official tax filing season kicks off on Monday, January 23, and it could bring some surprises for your wallet.

So, are you expecting to file your 2022 federal income tax return immediately or wait until the last minute, now is a good time to find out if you will owe more money to the IRS or are likely to get a refund and if so, how much.

Here’s why: The amounts could be very different than they were last year. Several popular tax credits have changed since you filed for 2021. Your financial circumstances may also have changed if you’ve sold property or been made redundant.

If it turns out you’ll owe additional money to the IRS and it will take some time to collect the funds, “You can still file, but set the payment date for April 18,” said Kathy Pickering, chief tax officer at H&R Block. (If you pay after April 18, you could be subject to penalties and interest.)

Most Americans receive a federal tax refund each year, and for many, that refund is a boon to their finances.

But that benefit could be smaller this year, in part due to the expiration of some tax relief enhancements that were in effect the previous tax year.

Tax credit for children: For tax year 2022, parents can claim a maximum child tax credit of $2,000 for each child up to age 16 if your modified adjusted gross income is below $200,000 ($400,000 if you file jointly). Above these levels, credit begins to gradually decrease. And the portion of the credit that’s treated as refundable — meaning it’s paid to you even if you owe no federal income tax — is capped at $1,500, and that’s only available to those with at least $2,500 in earned income.

But that’s well below the now-expired enhanced child tax credit that was in place for 2021. Among other things, it was fully refundable with no earned income requirement, Pickering noted. And the improvements allow parents to claim a maximum credit of $3,600 for each child under 6 and up to $3,000 for children 6 to 17.

Credit for child and dependent care: The tax credit that working parents use to pay for child care or that filers claim to pay for the care of a dependent adult is also significantly lower for the 2022 tax year. That’s because Congress allowed the 2021 enhancements to expire.

For example, on your 2022 return you can claim up to 35% on up to $3,000 of expenses for one person or up to $6,000 of expenses for two or more people. It’s a nonrefundable credit, which means you can only claim it if you have a federal income tax liability to offset.

In contrast, for the 2021 tax year, the credit was fully refundable and was worth up to 50% on expenses of up to $4,000 for one person or up to $16,000 for two or more people.

That’s how much of a difference it makes, Pickering said. This year, if you have one child or dependent child, you can get a maximum credit of $1,050 ($2,100 for two or more). By contrast, last year your credit would have been $4,000 (or $8,000 for two or more).

Income tax relief for those without children: The EITC, which is a refundable credit, was a way to financially help low- and moderate-income workers (defined in 2022 as those with earned income of less than $59,187), especially those with children.

The EITC is also available to earners without qualifying children. But the size of the credit for someone in this group is only $560 for 2022. That’s nearly $1,000 less than the $1,502 they were allowed to claim in 2021. as a result of the one-year increase that was part of the US bailout.

Charitable deductions: To justify itemizing your 2022 deductions, which include charitable contributions, they will need to exceed the standard deduction of $12,950 for non-single filers or $25,900 for married filers.

Most filers do not list items. This usually means that the charitable contributions they made during the year are not recorded on their returns because they are covered by the standard deduction.

But for tax years 2020 and 2021, filers were allowed to take a so-called above-the-line deduction for charitable contributions of up to $300 ($600 if married filing jointly) in addition to the standard deduction.

That above-the-line deduction, however, has expired.

Severance pay: If you were laid off last year and received a lump sum severance payment, that money will be taxable in 2022. So if that happened at the end of the year, it could push your income into a higher bracket in 2022, something like a big – time bonus can.

Or if you received unemployment benefits, check to see if the state withheld taxes on those payments. If not, that could mean you’ll have to send the IRS a check, Pickering noted.

The 2022 tax year is over, but there are still a few things you can do to increase the money the IRS sends you or reduce the amount you’ll owe.

Overview of last year’s return: Although several tax credits are now less generous, review your 2021 return to make sure you’ve claimed all the enhanced credits you were entitled to, Pickering said.

If you haven’t submitted them, “submit an amended return for 2021,” she suggested.

Use your capital losses: If you sold the property at a profit in 2022, you will owe tax on that profit. Unless, that is, you sold other assets at a loss equal to or greater than your gain. Your losses can offset your gains dollar for dollar. And if you still have losses after that, you can also apply them to $3,000 of your ordinary income for 2022. Any excess losses above that can be carried forward in future tax years.

If you only booked capital losses this year, you can still offset up to $3,000 of your income and carry forward the rest.

These loss rules also apply to crypto losses.

Contribute to an IRA: You can still make 2,022 contributions to an IRA until April 18, 2023. The annual limit on those contributions is $6,000 ($7,000 if you’re 50 or older).

Your contributions are deductible if you make them to a traditional IRA. But how much can be deducted it depends on two things: whether you have access to an employer-sponsored plan at work and your modified adjusted gross income.

To get the full deduction, neither you nor your spouse can be covered by a workplace pension plan. Or, if you have access to a workplace plan, you can still take the full deduction if your modified AGI is $68,000 or less ($109,000 or less if married filing jointly).

But if you have access to a plan and your income is higher, the math is different. You can get a partial deduction if your modified AGI is more than $68,000 but less than $78,000 (over $109,000 but less than $129,000 if you file jointly).

However, if your income exceeds $78,000 (or $129,000), you cannot take any deduction.

Maximize your health savings account contributions: If you already opened a health savings account last year and are covered by an HSA-eligible health plan, you can still make deductible contributions for 2022 by the April 18 tax filing deadline.

The maximum amount you can contribute is $3,650 for individual coverage or $7,300 for family coverage. Anyone who was 55 or older by the end of December can contribute another $1,000.

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