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Tax Law Changes That Can Fatten Your Refund

Updated for Tax Year 2022 • January 12, 2023 07:41 PM


OVERVIEW

Some changes to tax relief options and forms in 2020 could mean good things for your refund. Learn about a few basic steps you can take in areas such as your retirement account and energy spending to potentially see an increase.


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Key Takeaways

• For 2022, the Standard Deduction increased to $12,950 for those filing as single or married filing separately under age 65 and $25,900 for married filing jointly under the age of 65. The standard deduction increased for other filing statuses as well.

• To adjust for inflation, the IRS has raised the income limits for all tax brackets.

• The age for required minimum distributions, or RMDs, has been raised from 70.5 to 72 for anyone who turns 70.5 after 2019. Those with traditional IRAs can make contributions past the age of 70.5 beginning in 2020.

• The 2022 maximum employee contribution amount for 401(k)s, 403(b)s, 457 plans has increased to $20,500. The SIMPLE IRA contribution limit has increased to $14,000.

Recent congressional acts have made a number of adjustments to the tax code, and some of these changes may affect your refund. We've rounded up 10 recent and important tax law changes that can potentially increase the amount you are refunded. It's best to review the changes that have occurred every tax year so you can be sure not to miss out on any refund advantages when you file.

1. The American Opportunity Credit changes

The once temporary American Opportunity Credit has now been made permanent. Depending on income and filing status, taxpayers who pay college-related costs for themselves, a spouse, a child, or another dependent can receive a credit for up to $2,500 in tuition and related expenses, such as course materials.

Here's how it works: You get a credit for 100% of the first $2,000 you spend on post-secondary education. After that, you can claim a credit of 25% of up to the next $2,000. The credit is partially refundable, so if it reduces the taxes you owe below zero, you can receive up to $1,000 in the form of a refund.

2. Retirement account changes

The SECURE Act and the CARES Act have created several tax-law changes for retirement plans. Here are the highlights:

  • The SECURE Act raised the minimum age of RMDs from 70.5 to 72 for anyone who turns 70.5 after 2019. However, the CARES Act allows seniors to forego RMDs in 2020 without penalty.
  • Those with traditional IRAs can now make contributions past the age of 70.5 beginning in 2020.
  • Taxpayers who are having a baby or adopting a child can now take IRA and 401(k) payouts of up to $5,000 (per parent) without paying the 10% penalty.
  • For the 2020 tax year, taxpayers under 59.5 years of age can take IRA and 401(k) payouts of up to $100,000 for coronavirus-related expenses without paying the 10% penalty. Additionally, the coronavirus-related distribution can be included in income in equal amounts over a three-year period. The taxpayer has three years to put the money back into the accounts in order to undo the tax consequences of the distribution.
  • Retirement plan loans that were due in 2020 are delayed for one year.
  • The 2022 maximum contribution amount for 401(k)s, 403(b)s, 457 plans has increased to $20,500, and SIMPLE IRAs has also increased to $14,000. Additionally, the income ceilings on Roth IRA contributions has increased and is based on your adjusted gross income (AGI).

3. Standard deduction increase

The standard deduction is also undergoing tax law changes in 2022.

Here are the 2022 amounts:

Filing Status Standard Deduction
Married filing jointly under the age of 65 $25,900
Married filing jointly over the age of 65 $25,900 plus $1,750 for each spouse over the age of 65
Single or married filing separately under the age of 65 $12,950
Single or married filing separately over the age of 65 $14,700
Heads of household under the age of 65 $19,400
Heads of household over the age of 65 $21,150

4. Tax bracket changes

To adjust for inflation, the IRS has adjusted the income limits for all tax brackets:

Filing status and income Marginal Tax Rate
Single over $539,900

Married filing jointly over $647,850

37%
Single over $215,950 to $539,900

Married filing jointly $431,900 to $647,850

35%
Single $170,050 to $215,950

Married filing jointly $340,100 to $431,900

32%
Single $89,075 to $170,050

Married filing jointly $178,150 to $340,100

24%
Single $41,775 to $89,075

Married filing jointly $83,550 to $178,150

22%
Single $10,275 to $41,775

Married filing jointly $20,550 to $83,550

12%
Single up to $10,275

Married filing jointly up to $20,550

10%

 

 


 

TurboTax Tip: For tax years 2022 through 2032, you may be able to claim a credit worth 30% of the cost of certain energy-efficient equipment installed in your home, including solar water heaters, solar panels, fuel cells, and wind turbines. The credit is not refundable, but the excess can be carried forward to future tax years.

 


 

5. Charitable cash donation changes

For 2020 and 2021, the CARES Act suspended the 60% of AGI limit for most charitable cash deductions, which allows for more deductions by taxpayers who itemize. This does not apply if the cash donations go to a donor-advised fund or private nonoperating foundation. Additionally, taxpayers who don't itemize can deduct qualified charitable cash contributions up to $300 in 2020 and 2021 regardless of filing status and up to $600 in 2021 if married filing jointly.

For 2022 you will need to itemize your deductions to claim your charitable contributions.

6. W-4 changes

Beginning in 2020, the IRS has changed the Form W-4. Workers will no longer claim withholding allowances on the form. The new Form W-4 is now simplified and requires information about filing status, number of dependents, number of jobs, estimated tax breaks, and other income that may be reported on a 1040. Employees are not required to submit a new Form W-4 unless they are hired after 2019 or want to adjust their withholdings.

7. Form 1099-MISC and Form 1099-NEC changes

Beginning in tax year 2020, Form 1099-MISC has been revamped and Form 1099-NEC is back. Because of these changes, employers will no longer report nonemployee compensation of $600 or more on Form 1099-MISC. These types of payments to non-employees should be reported on a Form 1099-NEC. These payments include commissions, fees, prizes, awards, or any form of compensation to nonemployees. These forms should be given to the payee and filed with the IRS by January 31 each year.

Beginning in 2023, the requirements for issuing Form 1099-K have changed. For tax years prior to 2023, the threshold for third-party payment processors to issue the form is payments totaling more than $20,000 and more than 200 transactions. For tax years starting with 2023 and going forward the threshold is simply more than $600 in third-party processed payments without any consideration to the number of transactions. There is no threshold for payment card transactions.

8. Long-term care premium deduction changes

For taxpayers who itemize on Schedule A or self-employed taxpayers who complete a Schedule 1 of Form 1040, the limits for long-term care premium deductions have been raised for 2022.

  • Age 40 or under: $450
  • Age 41 to 50: $850
  • Age 51 to 60: $1,690
  • Age 61 to 70: $4,510
  • Age 71 and over: $5,640

9. Alternative Minimum Tax (AMT) changes

In early 2013, Congress made the AMT "patch" permanent to prevent millions of taxpayers from having to pay AMT in 2013 and beyond. The exemptions for 2020 are:

  • $75,900 for single and head of household filers.
  • $118,100 for married couples filing jointly and qualifying widow(er)s.
  • $59,050 for married people filing separately.

These amounts are indexed for inflation for future tax years.

10. Energy-efficiency credit changes

If you installed certain energy-efficient equipment in your home, such as solar water heaters, solar panels, fuel cells, and wind turbines, you may be able to claim a credit worth 26% of the expense in tax years 2020 and 2021. The credits jump back up to 30% beginning in 2022 through 2032. After this it goes back down to 26% for 2033 and to 22% in 2034. The credit expires after 2034. The credit is not refundable, but the excess can be carried forward to future tax years.

 

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