As the 2023 filing season rapidly approaches, taxpayers should be aware of federal tax law changes and updates that will affect individual 2022 income tax returns.
The tax rates are still the same for tax year 2022; however, the income thresholds for all tax brackets increased in 2022 to adjust for rising inflation.
| 2022 Marginal Income Tax Rates and Brackets | ||||
| 2022 Marginal Tax Rates | Single Tax Bracket | Married Filing Jointly Tax Bracket | Head of Household Tax Bracket | Married Filing Separately Tax Bracket |
| 10% | $0 – $10,275 | $0 – $20,550 | $0 – $14,650 | $0 – $10,275 |
| 12% | $10,275 – $41,775 | $20,550 – $83,550 | $14,650 – $55,900 | $10,275 – $41,775 |
| 22% | $41,775 – $89,075 | $83,550 – $178,150 | $55,900 – $89,050 | $41,775 – $89,075 |
| 24% | $89,075 – $170,050 | $178,150 – $340,100 | $89,050 – $170,050 | $89,075 – $170,050 |
| 32% | $170,050 – $215,950 | $340,100 – $431,900 | $170,050 – $215,950 | $170,050 – $215,950 |
| 35% | $215,950 – $539,900 | $431,900 – $647,850 | $215,950 – $539,900 | $215,950 – $323,925 |
| 37% | Over $539,900 | Over $647,850 | Over $539,900 | Over $323,925 |
Standard Deductions in 2022
The IRS released new standard deductions for 2022 to adapt to inflation.
| Standard Deduction | ||
| Filing Status | 2021 | 2022 |
| Single | $12,550 | $12,950 |
| Married Filing Jointly and qualifying widow(er) | $25,100 | $25,900 |
| Married Filing Separately | $12,550 | $12,950 |
| Head of Household | $18,800 | $19,400 |
Health Savings Accounts
The IRS increased contribution limits to Health Savings Accounts (HSA) for 2022 to better align with inflation.
| Inflation-Adjusted Limitations for HSAs | ||||
| 2021 | 2022 | |||
| Self-Only Coverage | Family | Self-Only Coverage | Family | |
| Contribution Limit | $3,600 | $7,200 | $3,650 | $7,300 |
| Additional catch-up contribution for taxpayer age 55 or older | $1,000 | $1,000 per qualifying spouse | $1,000 | $1,000 per qualifying spouse |
| Minimum health insurance deductible | $1,400 | $2,800 | $1,400 | $2,800 |
| Maximum out of pocket | $7,000 | $14,000 | $7,050 | $14,100 |
Child Tax Credit
The child tax credit reverts to its pre-2021 form for the 2022 tax year. This means the 2022 credit amount drops back down to $2,000 per child (it was $3,000 for children 6 to 17 years of age, and $3,600 for children 5 years old and younger for the 2021 tax year).
Children who are 17 years old do not qualify for the credit this year because the former age limit (16 years old) returns. For some lower-income taxpayers, the 2022 credit is only partially refundable (up to $1,500 per qualifying child), and they must have earned income of at least $2,500 to take advantage of the credit’s limited refundability. In addition, there will be no monthly advance payments of the credit in 2022.
Child and Dependent Care Tax Credit
The 2021 enhancements to the credit for child and dependent care expenses under the American Rescue Plan Act of 2021 have expired. For 2022:
- The credit for child and dependent care expenses is nonrefundable and taxpayers may claim the credit on qualifying employment-related expenses of up to $3,000 if claiming one qualifying person or $6,000 for two or more qualifying persons.
- The maximum credit is 35% of all employment-related expenses. The more income earned, the lower the percentage of employment-related expenses are considered in determining the credit. Once a person’s adjusted gross income is over $43,000, the maximum credit is 20% of employment-related expenses.
- The maximum amount that can be excluded from an employee’s income through a dependent care assistance program is $5,000 ($2,500 if married filing separately).
Earned Income Tax Credit
The enhancements for taxpayers without a qualifying child that applied for 2021 do not apply for 2022. This means that to claim the EITC without a qualifying child in 2022, taxpayers must be at least age 25 but under age 65 at the end of 2022.
For those married and filing a joint return, either the taxpayer or spouse must be at least age 25 but under age 65 at the end of 2022. It does not matter which spouse meets the age requirement, as long as one spouses does.
Charitable Contributions
The temporary changes to the charitable contribution deduction rules in effect for 2020 and 2021 through COVID-19 legislation are no longer in effect for 2022. As such, the Tax Cuts and Jobs Act rules for charitable contributions that applied in 2019 are the same rules that apply for 2022.Subsequently, the following items are not available in 2022:
- The 100% of AGI charitable contribution limit; and
- The limited deduction for cash charitable contributions for those who claim the standard deduction.
For noncash property and contributions carried forward from prior years that do not qualify for this deduction, the existing 20%, 30%, and 50% limits apply.
Self-Employed Individuals
The self-employed and owners of LLCs, S corporations, and other pass-through entities can continue to deduct 20% of their qualified business income, subject to limitations for individuals with taxable income in excess of $340,100 for joint filers and $170,050 for others ($329,800 and $164,900, respectively, for 2021).
Note: Tax credits allowed for self-employed people unable to work due to pandemic-related sickness or family leave have expired and are not available for the 2022 tax year.
Other Provisions
The Inflation Reduction Act was passed into law in August 2022 and contained numerous green energy credit provisions, including extended credits for clean energy vehicles (new and used) and energy-efficient home improvements. However, there are many more limitations for these credits, including income limitations and manufacturer’s suggested retail price limitations in the case of the Clean Vehicle Credit.
Large inflation adjustments
Premium Tax Credit (PTC) is a refundable credit designed to help families cover health insurance premiums if purchased through the Health Insurance Marketplace. Some taxpayers may qualify for this temporarily expanded tax credit for the 2022 tax year. More information regarding eligibility for the PTC is available on the IRS website.
The Consolidated Appropriations Act, 2023, P.L. 117-328, enacted on Dec. 29, 2022, included (as its Division T) the Secure 2.0 Act, which contains several retirement and tax provisions. Below are just a few changes:
- Increases the age for mandatory RMDs from age 72 to age 73 starting in 2023, and to age 75 starting in 2033;
- Increases the 401(k) and 403(b) plan catch-up contribution limits;
- Requires all catch-up contributions to qualified retirement plans by employees with compensation in excess of $145,000 (indexed) be subject to mandatory Roth tax treatment (after-tax), effective for post-2023 taxable years;
- Increases the annual contribution for employee deferral and catch-up contributions to SIMPLE plans by 10% (employers with more than 25 employees would also have to increase their matching contributions) and allows employers to make additional non elective contributions to SIMPLE plans, effective beginning with the 2024 taxable year;
- Allows for the creation of Roth SIMPLE IRAs and Roth SEP IRAs beginning with the 2023 taxable year
For highlights on the Secure 2.0 Act, click here.
Author, Susie Ng
Tax Supervising Senior
Spiegel Accountancy
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.