It’s never too early to think about next year’s taxes. Although the federal government needs tax dollars to operate, taxpayers have the right to take advantage of tax law when filing taxes. However, tax law is complicated. Software tries to help, but changes in tax laws and multi-conditional assessments make it difficult for tax software to guarantee 100% accuracy. No matter how taxpayers determine their tax liability they are ultimately responsible for their taxes.
Understanding Tax Law
Congress passes tax laws that the Internal Revenue Service (IRS) enforces. As with any federal law, violations can result in legal and financial penalties. Taxpayers often forget the legality of taxation as they prepare their annual taxes. Although tax law often carries a negative connotation, it does provide the following:
Protection. Tax laws ensure that taxpayers are treated equitably.
Planning. Tax laws fix taxation for a set time period enabling taxpayers to plan for their tax liability.
Knowing the applicable tax regulations provides a sense of security when determining a tax bill.
New IRS Tax Laws for 2022
The 2022 changes in tax law include the expiration of 2020 and 2021 deductions and credits. Tax tables and schedules received their annual adjustments for inflation, and child-related tax laws were adjusted. Here is a look at the changes to the 2022 tax laws.
Tax Brackets
Tax brackets were adjusted for inflation, but the tax rates remained the same. The following table shows changes in the 2022 tax tables:
| Tax Rate | Single Taxable Income | Married Filing Jointly | Head of Household |
| 10% | Less than $10,276 | Less than $20,551 | Less than $14,201 |
| 12% | $10,276 to $41,775 | $20,551 to $83,550 | $14,201 to $54,200 |
| 22% | $41,776 to $89,075 | $83,551 to $178,150 | $54,201 to $86,350 |
| 24% | $89,076 to $170,050 | $178,151 to $340,100 | $86,351 to $164,900 |
| 32% | $170,051 to $215,950 | $340,101 to $431,900 | $164,901 to $209,400 |
| 35% | $215,951 to $539,900 | $431,901 to $647,850 | $209,401 to $523,600 |
| 37% | Above $539,900 | Above $647,850 | Above $523,600 |
Income increases are higher than in previous years because of higher inflation.
Standard Deductions
Standard deduction increases are shown in the following table. In addition, aged or blind taxpayers may add $1,400 to their standard deductions or $1,750 for unmarried aged or blind filers.
| Filing Status | Standard Deduction |
| Single | $12,950 |
| Married Filing Jointly | $25,900 |
| Married Filing Separately | $12,950 |
| Head of Household | $19,400 |
Standard deductions for individuals who may be claimed as a dependent by another taxpayer are $1,150 or the individual’s earned income plus $400.
Child-Related Tax Credits
Changes to the child tax credit for 2021 expired in December 2021. Unless Congress extends these changes, child tax credits will return to $2,000 per child up to age 16. The 2021 changes increased the age limit to 17 and provided $3,000 for children six to 17 and $3,600 for children under five.
Child and dependent care credits revert to pre-2021 levels as well unless Congress extends the changes. Care credits return to a maximum of 35% from the 50%. In 2021, the maximum credit for one dependent was $4,000 or $8,000 for more than one. For 2022, the rate returns to $1,050 for one and $2,100 for more than one. Only families making less than $15,000 per year can use the credit, down from the $125,000 in 2021. Credits become nonrefundable in 2022.
The so-called kiddie tax applies to any child over 18 or a full-time student under age 24 receiving more than $1,150 per year in unearned income. If a child earns more than $1,150, the next $1,150 is taxed at the child’s rate. Any income above $2,300 is taxed at the parent’s rate. The 2022 amounts increased by $50.00 from the 2021 amount of $1,100.
Adoption credits increased by $450 for 2022. Special needs adoption can receive the full credit of $14,890 regardless of the cost of the adoption. The credit does phase out for taxpayers with an adjusted gross income of $223,410.
1099-K Forms
For gig workers and others that use payment settlement services such as Venmo and PayPal expect to receive a 1099-K if you received more than $600 for goods or services rendered. Before the 2022 tax year, reporting requirements were for anyone receiving over $20,000 in gross payments and had more than 200 transactions.
With the lower payment threshold and the elimination of the transaction minimum, more taxpayers can expect to receive 1099-Ks. These changes enable the IRS to track income coming from side-hustles and gig workers. The requirement does not extend to payments or financial gifts from family and friends.
How will the 2022 IRS Tax Laws Impact Taxes?
Adjustments in tax brackets and standard deductions always impact taxes. Taxpayers may need to change their withholding or increase their quarterly tax payments to minimize their tax liability at year-end. For families with children or dependents, changes to the tax code may have significant tax implications if the 2021 changes are not extended.
For the self-employed, the 1099-K requirement makes it easier to track payments through settlement networks; however, taxpayers should cross-check their records to ensure the correct amount is reported. Changes to contribution levels for charitable donations, health savings accounts, and flexible savings accounts may impact taxable income.
Given the number and complexity of the new IRS tax laws of 2022, businesses and individuals should consider speaking with an accounting firm. They can review the new tax code and recommend adjustments based on current circumstances and past tax returns. The early you start tax planning, the fewer surprises at tax time. Contact us to begin your 2022 tax planning.
