Tax experts say we’re “going back to normal” when you file for tax year 2022. There’s a pro and a con to that: You’ll likely get your refund quicker this year than the last two – but for less money.
Below we break down why. It has a lot to do with these four changes:
- Fewer tax credits
- Relief from the American Rescue Plan of 2021 has expired
- Larger standard deductions
- New tax brackets
Taxpayers filing income tax returns by April 18 need to understand these updates to file taxes correctly and avoid issues with the IRS.[1]
Bye-bye, pandemic tax credits
The IRS allowed taxpayers credits and deductions under the American Rescue Plan of 2021 to save money. Many are now expired.
At-home test kits, hand sanitizer, and personal protective equipment are no longer eligible to be paid or reimbursed under health flexible spending arrangements (FSAs), health reimbursement arrangements (HRAs), health savings accounts (HSAs), or even Archer medical savings accounts (MSAs).
What was referred to as the “above-the-line” deduction was a way to lower how your taxable income. The IRS allowed $300 cash donations – $600 for married filers – to qualified charities to count as deductible gross income.
Many tax filers never took advantage of the deduction and experts say it wasn’t a huge saving anyway.
Changes to standard deductions and tax brackets
Last November, the IRS announced that there would be “inflation adjustments for tax year 2022” for more than 60 tax provisions.[2]
This year, the standard deduction for married couples who file jointly rises to $27,700, which is up $1,800 from 2022. If you are filing as a single taxpayer or if you are married individuals filing separately, the standard deduction rises to $13,850, up $900 from the prior year. And for heads of households, the standard deduction will be $20,800, which is up $1,400 from 2022.
2022 tax brackets
Depending on how much you earn (tax bracket) is the percentage of earnings you’re taxed on (tax rate).
Tax rates won’t change this year, but those seven tax brackets have shifted. However, to keep up with inflation, the IRS has increased income brackets for 2022 tax returns. You can learn what the 2022 income tax brackets are here.
Public Service Loan Forgiveness
If you’re employed by a federal, state, local or tribal government, or a non-profit organization, you may qualify for the Public Service Loan Forgiveness Program. The way the PSLF Program works is after you have made 120 monthly payments (or 10 years of payments) under a repayment plan while working full-time for a qualifying employer, you may be forgiven for the remaining balance on your direct loans.
In 2021, the government passed legislation that makes all student loan forgiveness tax-free through 2025. Further, for anyone that receives forgiveness through PSLF (Public Service Loan Forgiveness), the forgiven amount is tax-free regardless of when it was forgiven.
This hasn’t changed since and you may still qualify.
Tips for filing taxes
Now that you know what’s changed since last year, here are four quick tips to make filing your return a breeze…
1. How to do your taxes for free
If you make $60,000 or less per year, have a disability, or speak limited English, you might qualify for free tax preparation through an IRS program called Volunteer Income Tax Assistance. The only catch is you have to go in person, but you can search for an IRS-certified tax helper by zip code right here.
If your household income is $73,000 or less, you have the Free File option. Also, tax filers over 60 can get some free tax help from another IRS program called Tax Counseling for the Elderly. Through TCE, organizations like AARP offer tax preparation and help with confusing tax questions.
2. How do I know if I owe the IRS money?
You can use Debt.com’s Free Income Tax Calculator to project exactly what you’ll owe on your 2022 taxes.
You’ll need the most recent paycheck stub for everyone on your return, and the tax return you completed the year prior to guide you in estimating your deductions and credits. The final result even instructs you about how to fill out your Form W-4 for withholding.
Take that to your human resources department or fill out the form on your company payroll site, and you can avoid owing a big tax bill next year.
3. How to file as a “gig worker”
Many gig workers paid through apps like Venmo, PayPal, and CashApp may have lucked out this year. The IRS planned on making 2022 the tax filing year where any side income earnings over $600 were going to receive a 1099-K. In December, the IRS announced it would delay the rollout by one year.[3]
It’s nothing to be ignored. The IRS made the move with the intent of easing the new filing process for gig workers.
Contract and freelance workers typically receive a 1099-MISC for earnings over $400. Those workers should pay taxes on a quarterly basis to avoid a penalty at the end of the year.
Many experts advise setting aside 25 to 30 percent of your quarterly earnings to pay the IRS every three months. The IRS provides Form 1040 as a tool to calculate your taxable earnings.
4. How to get a tax extension
Can’t afford to pay your taxes by the April 18 deadline? You can get a six-month extension to file your taxes.
It doesn’t get you off the hook for unpaid taxes, though. So if you owe Uncle Sam, you should pay what you can before Tax Day. (If you overpay, you’ll be able to mention that when you do file the paperwork, and you’ll get a refund.)
If you haven’t paid in full by the April 18 deadline, you’ll be hit with interest charges on the unpaid amount.
If you’re curious about when you’ll get your money, check out Debt.com’s in-depth report Where’s My Tax Refund?
Source:
[2]https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022
[3]https://www.irs.gov/newsroom/irs-announces-delay-for-implementation-of-600-reporting-threshold-for-third-party-payment-platforms-forms-1099-k
Article last modified on February 22, 2023. Published by Debt.com, LLC