Updated Tax Laws for 2022 Tax Year
Keeping You Informed
Child Tax Credit
Reduced back to the pre-2021 amount of $2,000 per child for children under the age of 17 at the end of the year. The credit may be partially refundable.
Child and Dependent Care Credit
Maximum expenses go back to the pre-2021 amounts of $3,000 for one child and $6,000 for two. The credit is up to 35% of the qualified expenses ($3,000 x 35% = $1,050 maximum credit for one child). The credit is non-refundable.
Clean Vehicle Credit
Most changes don’t apply until 2023. One of the changes made by the Inflation Reduction Act requires final assembly of a qualifying clean vehicle purchased after 08/16/2022 to occur in North America.
For the 2022 tax year, teachers and other educators who pay for books, supplies, COVID-19 protective items and other materials used in the classroom out of their own pockets can deduct up to $300 of these costs as an above the line deduction. Eligible educators include kindergarten through grade 12 teachers, instructors, counselors, principals or aides in a school for at least 900 hours during a school year. Homeschooling parents can not take the deduction.
This form reports third party payments (e.g., PayPal and Venmo) over $600 during the year for goods and services. It does not apply to payments from family and friends.
Health Savings Accounts
The 2022 maximum contribution is $3,600 for a self only plan and $7,300 for a family plan (plus a $1,000 catch-up contribution if you’re over age 55).
Itemized or Standard Deduction
Many taxpayers will not be able to itemize deductions (at federal level) because of the higher standard deduction amounts. The standard deduction for federal income tax purposes are as follows:
- Married Filing Joint $25,900
- Single $12,950
- Head of Household $19, 400
If you are over 65 and/or blind, you will receive an even higher standard than those listed above.
Reduced itemized deductions include a $10,000 limit on state and local taxes. Add up the amounts you paid in state withholdings and estimated taxes you paid in 2022, plus real estate taxes you paid on property you own (not including rentals) and your vehicle license tax. You will lose any amounts over the $10,000 limit for this deduction.
Medical expenses are deductible but subject to 7.5% of your adjusted gross income (AGI). If your AGI is $100,000, the floor you must get above is $7,500. Certain states, including Arizona, do not have a limit on the amount you may deduct for medical expenses.
It is very common for Arizona residents to itemize on their state tax retur but not the federal return because Arizona does not limit medical deductions.
Deductions that no longer exist include the following:
- Individual income tax preparation fees
- Unreimbursed employee expenses (expenses for employment related to W2 recipients)
QBID - Qualified Business Income Deduction
If you are a sole-proprietor or have an interest in a partnership or S-Corporation, you may qualify for a 20% Qualified Business Income Deduction. Many of you reaped the benefits of this deduction in 2018, the year the QBID began.
Residential Clean Energy Credit
Beginning in 2022, under the Inflation Reduction Act, the credit is 30% of the cost to install qualifying electric, water heating, or temperature control systems for your home that use solar, wind, geothermal or fuel cell power. The credit is non-refundable, but any excess may be carried forward up to five years.
For 2022, the maximum contributions for 401(k), 403(b) and 457 accounts is $20,500 (plus a $6,500 catch-up contribution if you’re over age 50.) The maximum contribution for a SIMPLE IRA is $14,000 (plus a $3,000 catch-up contribution if you’re over age 50).
Standard Mileage Rate
The IRS adjusted the standard mileage rates for 2022 during the middle of the year. Therefore, you will need to provide your business and medical mileage according to these dates. Business mileage: 01/01/22 – 06/30/22 the rate is 58.5 cents per mile. From 07/01/22 – 12/31/22 the rate is 62.5 cents. Medical mileage: 01/01/22 – 06/30/22 the rate is 18 cents per mile. From 07/31/22 – 12/31/22 the rate jumps to 22 cents per mile. Charitable purpose mileage remains fixed by law at 14 cents per mile.