TAXES: WHAT’S OLD IS NEW IN 2022
Jan 1, 2022
The Child Tax Credit is Changing … Back!
Thomas Dewar said, “The only thing that hurts more than paying an income tax is not having to pay an income tax.” While Americans felt the effects of 2021’s continued pandemic and employment issues, a lot of families benefitted from the increased Child Tax Credit (known as the CTC) portion of the American Rescue Plan. The credit was temporarily increased to $3600 for each child under age 6 and $3000 for each child age 6 through 17. If the credit exceeded the taxes owed, families were able to receive the excess as a refund up to the full amount. Those increases helped families regain their financial footing last year. But you should know that — taxwise — the year 2022 is going back to the future.
In 2022, the pre-pandemic Child Tax Credit guidelines from 2017 are returning. As you may recall, the CTC prior to 2020 basically provided up to $2,000 per child age 16 and younger. Refunds were limited to $1400 per child. Other dependents — including children up to age 18 and full-time college students up to age 24 — could receive a nonrefundable credit of up to $500 each. It counted toward their tax bill, though families could not receive a refund if that amount was above what they owed. Still, it provided some relief for families.
These are the guidelines taxpayers will once-again follow this year. Be aware, the credit decreases by 5% of adjusted gross income over $200,000 for single parents ($400,000 for married couples). There are citizenship requirements, as well, though some noncitizens may qualify for the $500 nonrefundable portion of the CTC. Under the 2022 guidelines, the refundable CTC will be limited to 15% of earnings above $2500, which means that very low-income families probably cannot claim the credit. At best, any credit would be reduced. These guidelines are complex, so it’s worth checking with the IRS or a professional tax preparer regarding your circumstances.
A Few Tax Basics
Here are some tax-filing tips to help you start 2022 right:
Do a midyear tax prep. Start by printing out last year’s taxes and writing the new amounts you’ve had so far this year in the margins. Double those to see where you might stand at the end of the year. Make sure you keep track of important documents and records, from receipts to unemployment benefits. You’ll be glad you did when you need them later.
Select the right status. There are five options to choose from. You can be single, married filing jointly, married filing separately, head of household, or a qualifying widow(er) with a dependent child. This is important to get right, because tax credits, deductions, brackets and rates depend on your choice. This interactive tool from the IRS might help.
Select the right withholding. When you started your current job, did you fill out a W-4 Form? That form tells you how much is being withheld in taxes from every paycheck. You’ll want to have your employer take enough out so you don’t end up owing at the end of the year. But at the same time, you won’t receive interest on any extra money they take, so you should try not to give them too much. The good news is, you can redo the form and adjust your withholding at any time during the year.
Simple can be best. The standard deduction is a fixed amount set by the IRS that reduces your adjusted gross income based on your filing status. And that’s based on your marital status at the end of the year. In some years, a standard deduction might be the right choice.
Itemizing deductions might work too. Some common itemized deductions include mortgage interest, property taxes, qualifying charitable donations and medical expenses. Speaking with an IRS representative or a tax professional can help you determine if your expenses are worth itemizing.
Save, just in case. It’s nice to have some money set aside in case you find that you do owe taxes. In these uncertain times, you may have difficulty finding the extra dollars. Be sure to speak with a Honda FCU representative at 1-800-634-6632 to learn about automatic payroll deductions that can help.
Know When You Need a Pro
Sometimes, it’s better to let the professionals handle complex matters, like taxes. Doing it yourself — and making costly miscalculations — could be a seriously painful mistake. The IRS website can help you find a reliable tax preparer to get the job done right.