From ongoing tax code changes from the Tax Cuts and Jobs Act to all the changes brought about by the pandemic, there have been more tax updates than usual this year. Taxpayers filing income tax returns by April 18 need to understand these updates to file taxes correctly and avoid issues with the IRS.

To help you out, we went straight to tax experts to get details on all the key tax updates you need to know for 2022.

Tax updates from the American Rescue Plan Act

Stephen Wilhelm, a tax attorney at Justice Tax, LLC, explains some of the key tax updates brought about by the American Rescue Plan Act of 2021.

Substantial changes will be seen on the 2021 federal income tax return for expanded tax credits for families, a deduction for non-itemizers who give to charity, and a higher limit for itemizers who give to charity. These are the result of the American Rescue Plan. However, the expanded child tax credit does provide a potential pitfall in the case of overpayments.

EXPERT: Stephen Wilhelm, Tax Attorney for Justice Tax

The American Rescue Plan increased the amount of the Child Tax Credit (CTC), made it available for 17-year-old dependents, made it fully refundable for most families, and made it possible for families to receive up to half of it, in advance, in monthly payments during the last half of 2021. Moreover, families can get the credit, even if they have little or no income from a job, business, or other source. To get the CTC, eligible families must file a return, even if they received monthly payments. In addition, everyone must attach Schedule 8812 to their return.

People who didn’t qualify for the CTC in 2021 but received advance payments may have to repay part or all of them. But low- and moderate-income taxpayers are generally protected from this repayment requirement. Repayment protection is limited to $2,000 per child.

No repayment is required for taxpayers whose modified adjusted gross income is at or below:

  • Married filing jointly and qualified widows and widowers: $60,000
  • Head of household: $50,000
  • Everyone else: $40,000

Since repayment protection is phased out above these income levels, for those with higher incomes full or partial repayment is required. Full repayment is required for taxpayers with a modified AGI is at or above:

  • Married filing jointly and qualified widows and widowers: $120,000
  • Head of household: $100,000
  • Everyone else: $80,000

Use Schedule 8812 to report the repayment or determine whether the repayment protection applies. This is also the form to use to claim the CTC and report any advance payments of the CTC. To help ensure that this form is filled out correctly, anyone who received advance payments of the credit during 2021 should be sure to have a copy of Letter 6419 they received from the IRS.

Public Service Loan Forgiveness

If you are 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. Eric Kroll, CFP and Founder of Student Loans Over 50 explains.

Last year 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.

EXPERT: Erik Kroll, Certified Financial Planner and Owner of Student Loans Over 50

Deductions for COVID related equipment

The IRS clarified that the purchase of personal protective equipment, like home-testing kits, masks, hand sanitizers, etc., for the purpose of preventing the spread of COVID are deductible medical expenses. Also, the amounts paid for personal protective equipment are 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).

We talked to Kristine Stevenson Seale, IRS Enrolled Agent and host of the Dollars and $ense radio show to learn more.

Amounts paid for COVID-related PPE equipment – masks, hand sanitizer, wipes, etc. to prevent the spread of COVID are qualified medical expenses, BUT you still have to meet the general guideline to deduct medical expenses that exceed 7.5% of your adjusted gross income.

EXPERT: Kristine Stevenson Seale, IRS Enrolled Agent and Tax Resolution Specialist

Changes to standard deductions and tax brackets

The IRS announced that there would be inflation adjustments for 2022 for more than 60 tax provisions. This year, the standard deduction for married couples who file jointly rises to $25,900, which is up $800 from 2021. If you are filing as a single taxpayer or if you are married individuals filing separately, the standard deduction rises to $12,950, up $400 from the prior year. And for heads of households, the standard deduction will be $19,400, which is up $600 from 2021.

Some people may fair better by simply going with the standard deduction, says Douglas Hord, a tax and business consulting expert.

The average taxpayer who has two or fewer dependents will generally do better with the standard deduction.

EXPERT: Douglas Hord of My Tax Guy in Houston LLC.

Nonitemized charitable donations

Making charitable donations is a very effective way of lowering your income tax bill. Last year many people were unaware that they could take advantage of these deductibles through cash distributions, says Claire Hunsaker. The good news is that these are available again this year.

Many people missed this last year. Filers who use the standard deduction can still write off $300 of cash donations to qualified charities – $600 if you’re married. This rolled out last year and a lot of people missed it. 90% of filers use the standard deduction and can use this credit to reduce their taxable income. It has to be cash and a qualified organization, so Goodwill donations and GoFundMe don’t count.

EXPERT: Claire Hunsaker, IRS-certified Advance Preparer for the VITA/TCE program

Article last modified on November 16, 2022. Published by, LLC