2022 Income Tax News

by | Apr 1, 2022 | 2022, Family and Consumer Sciences, Money Management

Taxes, without a doubt, can conjure up responses from elation,” Yeah! I get a refund!,” to dread…” Darn, I owe!”  The Covid-19 pandemic has prompted another response…What in the heck happened to my 2019- and 2020-income tax return?

While it is quite normal for the Internal Revenue Service (IRS) to face a bit of backlog every year, according to The Washington Post, the IRS closed last year’s tax season with an unprecedented large number of returns unprocessed due to budget cuts and staff issues.

Most recently, IRS Commissioner Chuck Rettig said in a statement, “The pandemic continues to create challenges, but the IRS reminds people there are important steps they can take to help ensure their tax return and refund don’t face processing delays.”

Know that having all the information needed to file an accurate return helps the whole process and helps to avoid delays. The US 2022 (2021 tax year returns) income tax season will:

  • Begin on January 24, 2022. This is the day the tax agency will begin accepting and processing 2021 tax year returns.
    • The deadline to file 2021 federal taxes for most people is April 18, as April 15, Emancipation Day, is a holiday in Washington, D.C.
    • Maine and Massachusetts residents have until April 19 to file their federal returns, as April 18 is Patriot’s Day in those two states.
    • The deadline for filers requesting an extension is Oct. 17, 2022.
  • The IRS is urging to file your tax return electronically and, if you are due a refund, to choose direct deposit.
  • The IRS anticipates that most taxpayers will receive their refund within 21 days if they file electronically and choose direct deposit.

Please, do not be influenced to apply for a tax refund anticipation loan, typically known as an RAL, if you are not in an emergency for the loaned money. An RAL is a loan based on the anticipated amount of your federal income tax refund. Many tax filing services will offer you a RAL if… you file with their service. Know that your loan amount will be based on the value of your anticipated refund minus fees and/or interest charges.

Know, too, that your loan will be deposited directly to the lender once the IRS processes your income tax return. Be VERY careful with refund anticipation loans. An obvious positive attribute of the loan is you get money quickly – before the season even opens. Another benefit is that, once the lender receives your refund, the loan is paid. But what happens if your tax refund is smaller than the anticipated income tax refund? You now will have an outstanding loan that will need to be paid back.

As with many income tax seasons, there are changes to the tax code. Important changes for the 2022 income tax season include:

Standard Deduction

The standard deduction for taxpayers who do not itemize deductions on Form 1040, Schedule A, has increased. The standard deduction amounts for 2021 are:

  • Married Filing Jointly or Qualifying Widow(er) – $25,100 (increase of $300)
  • Head of Household – $18,800 (increase of $150)
  • Single or Married Filing Separately – $12,550 (increase of $150)

Taxpayers who are 65 and Older or are Blind

For 2021, the additional standard deduction amounts for taxpayers who are 65 and older or blind are:

  • Single or Head of Household – $1,700 (increase of $50)
  • Married taxpayers or Qualifying Widow(er) – $1,350 (increase of $50)

Earned Income Credit (EIC)

By law, the IRS cannot issue your refund before February 15. This includes your entire refund, not just the part that’s related to the credit you claimed on your tax return. This law change, which took effect in 2017, helps ensure that taxpayers receive the refund they are due by giving the IRS more time to detect and prevent fraud. If you claimed the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC), you can expect to get your refund by the first week of March if:

  1. You file your return electronically
  2. You choose to get your refund by direct deposit
  3. The IRS finds no issues with your return

For 2021 only:

  • More taxpayers without qualifying children can qualify for the Earned Income Tax Credit (EITC). The maximum EITC credit is nearly tripled for these taxpayers and, for the first time, is made available to both younger workers and senior citizens.
  • EITC is available to both taxpayers without qualifying children and families with qualifying children. (Taxpayers filing married filing separately can claim this credit in 2021.)
  • EITC can be figured using 2019 income, as long as it was higher than 2021 income. In some instances, this option will give a larger credit.

For 2021, the maximum EITC credit increased to:

  • $6,728 with three or more children
  • $5,980 with two children
  • $3,618 with one child
  • $1,502 with no children
  • $51,464 ($57,414 if Married Filing Jointly) with three or more qualifying children
  • $47,915 ($53,865 if Married Filing Jointly) with two qualifying children
  • $42,158 ($48,108 if Married Filing Jointly) with one qualifying child
  • $21,430 ($27,380 if Married Filing Jointly) with no qualifying child

Investment Income

  • Taxpayers whose investment income is more than $10,000 cannot claim the EITC.

Standard Mileage

For 2021, the following rates are in effect:

  • 56 cents per mile for business miles driven
  • 16 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations (no change)

 Education Benefits

American Opportunity Tax Credit for 2021 is gradually reduced (phased out) if taxpayers’ MAGI (Modified Adjusted Gross Income) is between $80,000 and $90,000 ($160,000 and $180,000 if Married Filing Jointly). Taxpayers cannot claim a credit if their MAGI is $90,000 or more ($180,000 or more if Married Filing Jointly).

Lifetime Learning Credit for 2021 is gradually reduced (phased out) if taxpayers’ MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if Married Filing Jointly). Taxpayers cannot claim a credit if their MAGI is $90,000 or more ($180,000 or more if Married Filing Jointly).

Student Loan Interest Deduction begins to phase out for taxpayers with MAGI in excess of $70,000 ($140,000 for joint returns) and is completely phased out for taxpayers with MAGI of $85,000 or more ($170,000 or more for joint returns).

Virtual Currency

The IRS announced that convertible virtual currencies, such as Bitcoin, would be treated as property and not as currency, thus creating immediate tax consequences for those using Bitcoins to pay for goods and services. Taxpayers having transactions in virtual currencies are out of scope for the VITA/TCE programs.

 

Heidi Copeland
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