Various tax law changes are coming in 2022 which will affect the vast majority of Americans. As the pandemic continues to wreak havoc in society and around the world, the Internal Revenue Service (IRS) has to continue to adjust tax income thresholds and tax rate schedules.
The government has also come up with additional financial packages to ease the burden of the pandemic on lower and middle-income families. Knowing the tax law changes can help you to plan with your finances and be more assured about how much taxes you have to pay. Here are some of the upcoming 2022 tax law changes.
Earned Income Tax Credit
The earned income tax credit is a refundable tax credit for low and moderate-income workers. The amount of tax credit you are eligible for depends on the number of children you have and your monthly income. People who do not have kids can also qualify for the earned income tax credit.
For 2022, the earned income tax credit ranges from $560 to $6935. This differs from the year 2022 where the earned tax credit ranges from $1502 to $6728. It is also important to note that tax credits available to people with no children have decreased significantly in 2022 from $1502 to $560.
This is because the American Rescue plan Act accounted for the increase from $543 to $1502 in 2021, and this expansion was not carried over in 2022. For people with 1, 2, 3, or more children, the amount of earned income tax credit will increase in 2022.
Capital Gains Tax
Capital gains taxes are evaluated based on the profits generated from the sales of assets. For the tax year of 2022, the IRS has increased the income thresholds for long-term capital gains. For example, a single person with a long-term capital gain of $459,751 and more would have to pay a capital gains tax rate of 20%. The same tax rate of 20% applied for individuals with a long-term capital gain of $445,851 or more in the tax year 2021.
Recovery Rebate Tax Credit
You can qualify for the Recovery Rebate Tax Credit in 2021 if you have not received the third economic impact payment or received only a partial payment. You can claim the Recovery Rebate Tax Credit in 2022 by filing a 2021 tax return.
You will also receive Letter 6475 from the IRS which shows the amount of third stimulus payment you have received. Do note that you have to keep the IRS letter with your tax records and will need the information to claim the recovery rebate tax credit.
Standard Deduction
The standard deduction helps to reduce your taxable income. For the tax year of 2022, the standard deduction will increase for people who are single, married and filing jointly, married and filing separately, and for the head of household. The standard deduction is also increased by $1400 for seniors above 65 or the blind. It is also increased by $1750 for unmarried people who are not surviving spouses.
