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Attention! Many Popular Tax Breaks from 2020 & 2021 Have Gone Away
Several tax breaks that led to bigger refunds or smaller bills during the 2020 & 2021 tax seasons won't be available any longer. Those laws were temporary changes intended to help taxpayers economically survive the worst of the COVID-19 pandemic. Let's review the major changes which will affect many taxpayers when their 2022 tax returns are prepared.
Gone... Economic Stimulus Payments. For the past two years, most taxpayers received economic stimulus payments. Those who were eligible for a stimulus payment but didn't receive one could claim it as tax credit (recovery rebate credit) when they filed their tax return.
Gone… Earned Income Credit (EITC) for Seniors The American Rescue Plan Act lifted that age limit for the 2021 tax year. This allowed some taxpayers over 64 years old and who worked in 2021 to receive the EITC when they filed their 2021 tax return. This tax break was only effective for the 2021 tax year. Under the current tax law, no seniors age 65 or older will qualify for the EITC after December 31, 2021.The American Rescue Plan Act lifted that age limit for the 2021 tax year. This allowed some taxpayers over 64 years old and who worked in 2021 to receive the EITC when they filed their 2021 tax return. This tax break was only effective for the 2021 tax year. Under the current tax law, no seniors age 65 or older will qualify for the EITC after December 31, 2021.
Gone... Earned Income Tax Credit for Younger Taxpayers. The Earned Income Tax Credit (EITC) is available to eligible workers from ages 25 through 64. However, the lower end of that age range was lowered just for 2021 by the American Rescue Plan. Therefore, some taxpayers ages 19 to 24 became eligible for the EITC for 2021 only. Under the current tax code, the age restrictions return so that no one under the age of 25 will qualify for the EITC when they file their 2022 tax.
Gone… Increased Child Tax Credit (CTC). Gone… Increased Child Tax Credit (CTC).
The American Rescue Plan increased the Child Tax Credit for 2021 not only in the amount of the credit but also in the age requirements.
The maximum credit was increased from $2,000 to $3,600 for children under age 6 and $3,000 for children ages 6 through 17 (previous maximum age UNDER age 17 will return for 2022 tax year).
These changes to the Child Tax Credit were temporary for 2021 only. Most taxpayers, with dependent children should expect to receive a smaller child tax credit for 2022.
Social Security Review
Social Security Benefits are increasing for 2023. Americans who collect Social Security will receive an 8.7% increase in their monthly payouts in 2023. The extra benefits kick in on January 1. Annual increases in Social Security are determined every year based on changes in a component of the consumer price index. Social Security recipients got a 5.9% cost-of-living adjustment in 2022, 1.3% in 2021,1.6% in 2020,2.8%. in 2019,2.0% in 2018 and 0.3% in 2017. These annual increases are meant to keep up with inflation. The average retiree received a benefit of $1,656 in 2022, meaning that the average retiree can expect to see a gross increase of about $144 per month. This will be the largest cost-of-living adjustment in 40 years.
Social Security Recipients Medicare Premiums for 2023
While it's still uncertain what the standard premium will be for 2023 - it is based on an actuarial formula and is typically revealed in early November for the next year. Early estimates would have most people pay about $164.90 per month for Medicare Part B in 2023. This would be a decrease of $5.20 per month from the current rate of $170.10 per month they are currently paying for 2022.
Social Security benefits are increasing by 8.7% in 2023.
The increase in Social Security benefit payments and decrease in Medicare premiums will be a double bonus for retirees in 2023.
Premiums are increased for higher-income beneficiaries—those with adjusted gross income (AGI) plus tax-exempt interest income (for tax year 2021) of more than $97,000 if single or $194,000 if married filing jointly.
These beneficiaries will continue to see the income limits adjust to general price inflation annually.
Social Security Wage Base Increases For 2023
The base upon which working taxpayers must pay the 6.2% Social Security tax for 2023 is increasing to $155,100. This is an increase of $8,100 over the 2022 limit of $147,000.
Tax Tips For You... Now!
There's Still Time to Act: Retirement Plan Contributions The limit on contributions to 401(k), 403(b) and most 457 Plans for 2022 increases to $20,500. If you are age 50 or older, additional catch-up contributions are unchanged at $6,500.
Re-Align Your Portfolio Many taxpayers have experienced a downturn in their stocks or mutual funds so far in 2022. The markets have become increasingly volatile and by selling losing investments (retirement plan investments are not included) you may not only reduce your risk to further downturns in the market, but you may also be eligible to claim net losses (excess of losses over gains) up to $3,000 on your 2022 tax return.
Required Minimum Distributions (RMDs) Now Begin at Age 72 RMDs are required minimum distributions taxpayers must take every year from their retirement savings accounts. Starting at age 72, these accounts include traditional IRAs, SEP IRAs and employer-sponsored plans such as 401(k)s and 403(b)s.
If you turned age 72 in 2022 and are taking your first RMD, you have until April 1, 2023, to do so. For each subsequent year, your RMD must be taken by December 31. Keep in mind, if you delay your initial RMD until April 1, you'll be responsible for 2 withdrawals that year (one by April 1 and one by December 31), which could result in a larger tax liability. Most taxpayers take their first RMD by December 31. Call me if you have questions about delaying your first RMD to April 2023.
If you're already older than 72, you must take your RMD by December 31 each year.
You Can Make IRA Contributions Beyond Age 70-1/2 You can continue to contribute from your earned income (i.e., paycheck) to your traditional IRA past age 70-1/2. These contributions can be made up to April 17, 2023, and still be counted for the 2022 tax year. Contribution limits for 2022 remain the same for 2021 with limits of $6,000 and additional $1,000 catch-up for those age 50 and older.
Frequently Overlooked Tax-Related Info!
Frequently Overlooked Tax-Related Info!
Take extra time to make sure that you have all the necessary facts if any of the following situations applies to you.
Child Care Expenses. I need the full name, address, telephone number and tax ID number of your care providers, and the total paid per child to each caregiver.
Estimated Federal Tax Payments. Find the date and amount for payments. April 18, 2022, June 15, 2022, September 15, 2022, and January 17, 2023. A Federal January 2022 payment would have been claimed on your 2021 return. Don't forget State estimated payments if any were made.
Sales of Stock. Form 1099-B shows sale prices or proceeds. If this form does not show the original purchase information (basis), you will need to provide this.
Sales of Property. The most important item is the Final Settlement Statement. Include a list of home improvements in all prior years since purchase. You may also receive a 1099-S showing the gross sales price for the property. Also needed is a copy of the final settlement statement from the purchase of the property - or some other way to confirm what was paid for the property.
College Tuition. Form 1098-T lists tuition paid. These forms are generally available electronically to the student. Make sure that the "student" checks for these forms and gives them to you. I need these forms as well as details on the courses, all education-related expenses for required equipment and related fees, when each item was paid and who the “student” was.
Tax Rules on Pass-Through Entities Continue. Schedules K-1 from partnerships, S-Corps and Trusts always seem to arrive late. Don't worry. We can do the rest of your return and be ready to finish when the elusive K-1 arrives. Be careful to separate purchases of major equipment from other supplies.
Social Security Benefits. We must report the gross amount and not just your net monthly benefit. Your Medicare Premiums listed on the form may also provide you with a medical deduction.
Employees - Last Pay Stub. Your W-2 is critical, but your last pay. stub may reveal tax deductions that do not usually show up anywhere else. Some charitable contributions may be reported that are deductible on your Federal Income Tax Return. Other reported items, such as union dues or employee expenses are no longer, deductible on your Federal Income Tax Return but may continue to be deductible on your State or Local Income Tax Returns.
Special Accounts.Do you contribute to an IRA, Roth IRA or Health Savings Account? These and others can affect your taxes. Make sure I have all 1099s and information on contribution and distribution amounts and dates.
Special Accounts.Do you contribute to an IRA, Roth IRA or Health Savings Account? These and others can cut your taxes. Make sure that I have all of the information on contribution amounts and dates of the contribution.
Complex Transactions. Please call if you have a foreclosure, sale or exchange of real estate, casualties such as a natural disaster.
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