It may startle you that you can already file your taxes for 2021. The IRS began accepting returns on January 24, 2022, and the deadline is April 18, 2022, to file. While there is still plenty of time to file your return(s), it’s important to know the 2022 tax season changes that could affect you.
While 2021 was a relatively quiet year on the tax front, with not a lot of major changes or new law, there are 3 must-know 2022 tax changes (on top of minor changes to annual limits).
Talk with Your Tax Professional about 2022 Tax Season Changes
This article is meant to be educational in nature. How these 2022 tax season changes affect you will vary. Take note of anything of concern or you think may apply to your situation and have a conversation with your tax professional.
3 Must-Know 2022 Tax Changes
- The Child Tax Credit Advance
As part of the pandemic relief efforts and the American Rescue Plan of 2021, individuals or couples with qualifying children (basically, children under 18 the entire year of 2021 who were a dependent – head to the IRS website for the full definition) were advanced up to half of the child tax credit they were eligible for. This payment was likely directly deposited into your account or you were sent a check, if eligible.
You will receive a Letter 6419 from the IRS detailing the total of the advance that you received to the credit. The child tax credit is up to $3,600 for children aged five and younger and $3,000 for children aged six to seventeen.
If you did receive funds in advance, know that this alters your taxes from when you filed last year. Be prepared that if you did receive payments in advance, there will be less of a credit on your tax return to offset your income. This can result in a lower refund, no refund, or the need to pay additional taxes.
Additionally, if life happened in 2022 and something changed that the IRS was not aware of, you may need to pay back some of the advance that you received. Changes would include the following:
- the qualifying child now lives with someone else;
- your income or filing status changed;
- you didn’t live in the United States for at least half of 2021.
If you have children, know that if you received funds in advanced, it lowers what could offset income on your tax return, likely lowering (if nothing else changed) any refund you typically receive.
2. Required Minimum Distributions were Reinstated in 2021.
Typically, if you are age 72 or older, you are required to take distributions from qualified retirement accounts (i.e. 401ks, Traditional IRAs). In 2020, the CARES ACT suspended required minimum distributions (RMDs) for 2020. In 2021, these RMDs were required for individuals aged 72 or older.
If you are age 72 or older and have investments in a qualified retirement account, and failed to take RMDs, it is possible you will owe a 50% tax on the RMD amount that was required.
3. The Unemployment Tax Brake Was Not Extended
The American Rescue Plan included language that included a tax break for people who received unemployment benefits in 2020. For single filers, in 2020 they could claim up to $10,200 of unemployment income that was tax-free.
For the 2022 Tax Season, this tax break was not extended. Therefore, all unemployment income is fully taxable. If you received unemployment income in 2021, this means your tax bill may be higher if your total income amount was the same as in 2020.
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