It’s everyone’s favorite time of year: tax time. There are some new changes to be aware of that may impact how you file your taxes. We’ve put together this blog to keep you up-to-date on everything you need to know regarding your 2022 taxes.
Here are the changes you should know about before filing:
1. There Are Free Ways to File
Preparing your taxes can be expensive, especially if you don’t already own or have access to software that will help you file. Here are some low-cost and free ways to file your 2022 taxes:
IRS Free File
If you had an adjusted gross income of $73,000 or less in 2022, you are eligible to use IRS Free File. This is a partnership between the IRS and the FreeFile Alliance, an organization that provides access to free tax preparation software. Use the Free File Online Lookup Tool to locate a provider.
Volunteer Income Tax Assistance (VITA)
The Volunteer Income Tax Assistance program, or VITA, is a federal program that helps community groups provide tax preparation services to low- and moderate-income Americans, as well as people with disabilities, senior citizens, and those with limited-English capabilities.
To qualify for free tax help from VITA, you must make around $63,000 or less. You can find a VITA site near you here.
2. Tax Brackets Have Shifted
While we’ve remained at seven tax brackets for some years now –, where your income falls within those brackets shifts each year. These shifts happen for a number of economic factors, including inflation.
3. Deductions Have Been Updated
From changes to the standard deduction after a federal inflation adjustment to slight shifts in rules for itemized deductions, here’s what changed for last year’s taxes:
- Standard Deduction Updates:
- Single Filers and Married Couples Filing Separately: $12,950
- Heads of Household (Unmarried with 1+ Dependents): $19,400
- Married Couples Filing Jointly: $25,900
- Charitable Donations: Have been reduced from what they were in the past. Now, the annual income tax deduction limits for gifts to public charities are 30% of Adjusted Gross Income (AGI) for contributions of non-cash assets—if held for more than one year—and 60% of AGI for contributions of cash.
- Medical Expenses: Only expenses that exceed 7.5% of AGI can be deducted in 2022.
- Miscellaneous Deductions: Are not allowed to be deducted this year.
- Mortgage Interest Deduction: Has been limited to $750,000 of indebtedness. But, if you had $1,000,000 of home mortgage debt before December 16, 2017, you’re still able to deduct the interest of that loan.
- State and Local Taxes: The deduction for state and local income taxes, property taxes, and real estate taxes is capped at $10,000 for the 2022 tax season.
Should You Take the Standard Deduction or Itemize?
For most taxpayers, taking the standard deduction is both less of a hassle and more practical. But, if you regularly contribute to charities, incurred any medical expenses, and/or own any real estate, itemizing your deductions could significantly reduce your tax burden – as long as you’ve kept up with all of your receipts! For more information on if a standard or itemized deduction is right for you, we advise you speak with a certified tax professional.
4. Some Tax Credits Have Changed
Tax credits, which reduce your overall tax liability dollar for dollar, are generally seen as superior to deductions because they’re not tied to your tax bracket. In other words, they’re a flat reduction of your taxable income regardless of how much money you make (with some exceptions as noted below). This year, both the child and premium tax credits have changed slightly from previous years:
Child Credits Lowered
In 2021, as part of the federal government’s response to the COVID-19 pandemic, the American Rescue Plan Act (ARPA) increased the amount received per child for all families. That increase was only for the 2021 tax year and, in 2022, the amounts return to their standard $2,000 per child under the age of 16. That credit is only available if you make less than $200,000 ($400,000 if filing jointly). For all other dependents (those above the age of 16), a $500 credit is also available.
Premium Tax Credits Expanded
The premium tax credit (PTC) helps eligible individuals and families cover health insurance premiums for plans purchased through the Health Insurance Marketplace. For 2021 and 2022, ARPA expanded eligibility for PTCs by eliminating the rule that a taxpayer with household income above 400% of the federal poverty line cannot qualify for a premium tax credit. If you’re currently enrolled for insurance through the Marketplace, make sure to check if you’re eligible and apply.
5. Dates You Need To Know
Keep track of your tax season due dates with this list:
6. What To Do If You Owe
If you owe taxes this year you have a number of options for paying them back. Can’t pay on time? The IRS offers three options for payment agreements.
First, you can pay what you owe within 10 days of the original due date. Second, you can set up a short-term payment plan to pay back within 11-120 days. There’s no fee to request this extension, but there is a penalty of 0.5% per month of the unpaid balance. The IRS will also charge interest at the short-term Federal rate plus 3%.
Third, you can set up an installment agreement to pay back what you owe in a series of monthly payments. The application fee is $149 if you plan to pay by mail, or just $31 if you plan on paying electronically. If you need to apply for a low-income application fee, you can fill out this form.
If none of those work for your situation, or are applicable, you could also apply for a hardship extension.
Get Your Refund Faster
While most filers still prefer a physical check in the mail, those can take 21 days or more before you’ll see them in your mailbox. Looking for a faster refund? Select to receive your refund through a direct deposit into your bank account and you’ll typically receive your federal refund in less than two weeks!