Tax credits are a great way to reduce your taxable income and save money. In 2021 there were a variety of credits available for individuals and businesses, such as the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), and the American Opportunity Tax Credit (AOTC).
In 2022, these same credits will be available and may even be expanded. The EITC is available to both individuals and households whose incomes fall below certain thresholds. The CTC is a refundable credit that helps families with children under age 17. The AOTC, meanwhile, allows students or their families to claim up to $2,500 in credits for higher education expenses such as tuition, books, and fees.
Additionally, other credits may become available in the 2022 tax season, depending on changes in federal taxes or other legislation. Knowing what options are available can help you save money when filing your taxes next year.
What Is A Tax Credit?
A tax credit is a type of credit that can reduce the amount of taxes owed on an individual or business tax return. Tax credits are typically used to encourage certain activities that are beneficial to society, such as providing incentives for people to invest in renewable energy sources or to promote research and development.
Tax credits are usually refundable, meaning that if the taxpayer’s tax liability is reduced below zero, they will receive a refund for any excess credits. They may also be non-refundable, meaning that any unused credit will not be refunded but instead carried forward and applied against future years’ tax liabilities. Tax credits can have a significant impact on someone’s overall financial health, so it’s important to understand how they work and how they can be used in order to maximize the full credit.
We will get into the available credits later on in this article, but for now, lets discover the new changes for the 2022 tax year.
What’s Changed For 2022?
As of December 1st tax law updates for the 2022 tax year are still being determined, but here are some proposed changes that may be implemented. Below are the current changes from the 2021 tax year.
Earned Income Tax Credit (EITC)
The EITC is a credit aimed at helping low- and moderate-income individuals and families who work. This credit provides a refundable tax credit based on how much money you earned in the previous year. It can potentially result in a tax refund of several thousands of dollars for those who qualify, making it an important tool for those with lower incomes to help make ends meet.
The amount of the credit varies depending on income, number of children, marital status, and other factors. To ensure that you receive the maximum benefit available to you, it is important to check with a qualified tax professional or review IRS publications to become familiar with the rules and requirements associated with the EITC. For 2022 the following changes have been implemented
- Filers without kids must be at least 25 or under age 65 to be eligible
- Previous year’s income can’t be used to help you qualify for ETIC
- The EITC credit is increased up to $6,935 for filers with 3 or more children
Child and Dependent Care Credit
The Child and Dependent Care Tax Credit is a valuable benefit that can be used to reduce the amount of taxes owed by those who have incurred expenses for child or dependent care. This credit is available to taxpayers who have paid for child care in order to go to work or look for work, as well as those who are caring for a dependent adult.
To be eligible, you must have earned income from employment or self-employment during the year, and the care must be provided for someone who qualifies as the taxpayer’s dependent. The credit is worth up to 35% of up to $3,000 in expenses paid for one qualifying child or up to $6,000 in expenses paid for two or more individuals.
The credit may also offset alternative minimum tax. Taking advantage of this tax benefit can help reduce your overall tax burden and bring some financial relief. 2021 child tax credit amounts have increased and in 2022 the following tax law changes have been implemented:
- Filers could get up to 35% credit on $3,000 of child care expenses for one child under age 13 or an incapacitated spouse or parent. Alternatively, filers could receive up to 35% credit on $6,000 in care expenses for two or more dependents thanks to the American Rescue Plan.
- Credit amounts decrease if your Adjusted Gross Income (AGI) is over $15,000
The Made in America Tax Credit
A new credit called the “Made in America Tax Credit” would provide tax breaks to companies who manufacture products in the United States and create jobs for American workers. These proposed tax changes for the 2022 tax filing season could help families reduce their taxes and encourage businesses to remain in the US economy.
The standard deduction for 2022 is higher
The standard deduction is higher than it was in 2021. This means that more of your income can be excluded from your tax bill, allowing you to keep more of your hard-earned money. The amount of the deduction varies depending on the filing status you choose; single; married filing separately filers can claim up to $12,950, head of household filers can claim up to $19,400 and married couple filing jointly can claim up to $25,900.
In addition, those who are 65 or older or blind can qualify for additional deductions. This will be easier for taxpayers to save money and keep more of their earnings on their 2022 filing.
Tax brackets are also higher in 2022
Tax brackets are set to increase. This means that people who make more money will be taxed at a higher rate than they were previously. It also means that those who make less money will be taxed at a lower rate.
This change is intended to help the government raise more revenue and create additional funds for social programs and other initiatives. However, it is important to note that this change may impact people differently depending on their individual income level.
People with higher incomes may find themselves paying more in taxes, while people with lower incomes may benefit from the lower rates. It is important for everyone to take the time to learn about how these changes may affect them and plan accordingly.
For tax year 2022, the Recovery Rebate Credit is no longer available as there were no stimulus checks issued this year. You may be able to qualify for the credit for 2021 by filing an amendment if you did not claim the full credit in last years filing or if you have a past due tax return from 2021.
To make taxes more accessible and simpler, the White House has also proposed a “pre-filled tax form” that would allow taxpayers to automatically fill out their federal income tax 2022 returns using data already on file with the IRS.
Here Are A Few Popular Tax Deductions And Tax Credits
Tax credits and deductions are incredibly popular, as they can help to reduce the amount of taxes you owe. Some of the biggest tax deductions and credits include those related to medical expenses, charitable donations, student loan interest payments, state and local taxes, mortgage interest payments, contributions to qualified retirement plans, child care costs, energy-efficient home improvements and more.
Other credits you might qualify for, include expenses related to moving for work or job-related education costs. Additionally, some taxpayers may be eligible for credits like the EITC or Child Tax Credit. Those with investment income can take advantage of any costs or losses associated with the investment. These can provide a significant amount of tax savings for those who are eligible for the credit.
It’s important to understand what you qualify for in order to maximize your potential savings. We strongly advise speaking to a qualified tax advisor before filing your 2022 tax return.
Lifetime Learning Credit
Lifetime Learning Credit is a great way to achieve your educational goals. It is a credit designed to help individuals and families pay for post-secondary education expenses. It can be used for tuition fees, books, supplies and other expenses related to attending college or university.
The Lifetime Learning Credit offers up to $2,000 per tax year for an individual or family, based on the amount of qualified tuition and fees paid. This credit can be taken every year until you reach the lifetime maximum of $10,000 in total credits, regardless of what type of school you attend.
Additionally, it does not have to be taken in consecutive years and you may also claim it for yourself or dependent children’s continuing education courses. With this credit available, there are now more opportunities than ever before to pursue higher education without breaking the bank.
American Opportunity Tax Credit (AOTC)
The AOTC is a federal tax credit that helps eligible students and their families pay for college. It can be worth up to $2,500 per eligible student for the first four years of higher education expenses, including tuition, fees, books, and other supplies. The AOTC is a refundable tax credit, meaning you can get money back even if you don’t owe any taxes.
To qualify for the AOTC, you must be enrolled in an eligible program at least half-time and have not yet completed your fourth year of college or postsecondary education. Additionally, you must meet certain income requirements and be able to provide documentation such as transcripts or 1098-T forms to prove your enrollment status. Taking advantage of this valuable tax credit can help make college more affordable for many students and their families.
The above list is what we know of as of the date this article was written. There will be changes to the tax code and we will update this article as the changes are made available to the public.
There are other tax deductions available that were not listed and depend on each individuals situation. If you have a high income or high net worth we would love to speak with you and help maximize your tax savings. Feel free to give us a call at 877-860-3731 for a free no obligation consultation.