The tax code was already hard to keep up with before COVID-19 changed the economy for good. After a few years of stimulus checks, prolonged tax deadlines, and pandemic-related tax breaks, it’s trickier than ever to know what to expect when you file your tax return.
Whether your student loan debt was recently forgiven or your budget is still reeling from the lack of stimulus checks this year, you could be experiencing even more anxiety and confusion than usual this tax season. And who could blame you?
It might help to know that the top tax software will definitely be up on the most recent tax code changes, and so will any accountant or tax-filing service you work with this year.
Still, it’s important to understand what you’re getting into before you purchase tax software or walk into an accountant’s office.
Let’s dive into some of the biggest changes that could impact the tax refund you receive this year.
No one received stimulus checks this tax year
The pandemic is technically ongoing, and since it continues to impact Americans’ daily lives in a big way, it’s easy to forget that stimulus payments ended in 2021.
Tax year 2022 marks the first year Americans didn’t receive federal stimulus checks since the start of the pandemic.
Stimulus checks weren’t considered taxable income, so they could help you cover expenses without bumping you into a higher tax bracket.
If you owe money on taxes this year, it could be harder to find the cash to cover the gap without the stimulus checks that kept you going in 2020 and 2021.
Plus, if you didn’t receive a stimulus check in the mail, you had to file the Recovery Rebate Credit to claim your money in the previous years.
That isn’t an option this year, so don’t expect your tax return to come with hundreds of dollars in non-taxable stimulus money.
The charitable deduction will expire soon
When filing taxes, you can either file itemized tax deductions or take the standard deduction for your taxpayer status, age, and disability status.
Both itemized and standard deductions lower your overall taxable income, and under normal circumstances, you can claim only one of the other.
But for the 2021 tax year, Congress temporarily allowed charitable givers to itemize a certain amount of the money they donated along with taking the standard deduction.
That particular tax break will expire at the end of this year, so you won’t be able to deduct charitable donations if you take the standard deduction.
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Tax brackets increased
The amount of taxes you pay is determined in large part by which tax bracket you fall into.
People in the lowest tax bracket have a comparatively low taxable income and pay a 10% tax rate, while those in the highest have a comparatively high taxable income and pay a 37% tax rate.
At the end of 2021, Congress raised tax brackets for the 2022 tax year, which could mean you now fall into a different tax bracket than you did last year.
This doesn’t automatically mean you’ll receive a smaller refund, but you should expect to see some sort of change (for better or worse) if you’ve switched tax brackets.
Additionally, this year’s inflation caused many Americans to turn to side hustles to make ends meet. Depending on how much you made, the income from your side gig could be enough to bump you into a different tax bracket on its own.
State taxes aren’t necessarily forgiven even if your student loan debt was
If your student loan debt was forgiven this year, you don’t have to pay federal taxes on the balance that remained.
But depending on where in the country you live, you might still have to pay state taxes on the amount you had forgiven. Specifically, expect your forgiven student loan to be taxed if you live in North Carolina, Indiana, Mississippi, and Minnesota.
A few other states have not ruled on whether taxpayers must pay state taxes on forgiven student loans.
The EITC has returned to pre-pandemic qualifications
The Earned Income Tax Credit (EITC) is a tax break geared toward lower-income individuals. In 2021, the American Relief Act changed the parameters of who could qualify for the EITC during the 2021 tax year to make more taxpayers eligible for more savings.
But for the 2022 tax year, the more rigid pre-pandemic EITC rules apply again, so you might not qualify for the EITC any longer even if you did last year.
Some refunds may take longer to process
Most of the time, the IRS is able to process and issue tax refunds within three weeks after you file. Hopefully, you’ll still get your refund within that 21-day window this year too.
However, if you physically mail your tax paperwork instead of filing online, you shouldn’t expect a refund any sooner than six months.
It’s also important to remember that the Inflation Reduction Act, passed this year, laid out a 10-year plan to bolster the chronically understaffed IRS.
While the IRS has hired 4,000 new customer service reps and plans to hire 700 in-person tax experts to cope with this year’s tax season, don’t expect massive changes to the IRS’s processing speed.
It will take the full 10 years to get the equipment and personnel the IRS needs to function as quickly as we’d all like it to.
The IRS expects you to report cryptocurrency transactions
The more popular cryptocurrency becomes, the more attention the IRS pays to those who trade it, especially to the taxes paid (or not paid) on those transactions.
If you bought cryptocurrencies this year, make sure you’re reporting that income on your taxes.
And if you lost a lot of money trading crypto, make sure to report the losses too: doing so might reduce the amount of taxes you owe.
The Child Care and Dependent Tax Credit has returned to normal
Much like the EITC, the qualifications for the Child Care and Dependent Tax Credit were expanded to include more Americans during the 2021 tax year. Now, though, the tax credit has returned to stricter pre-pandemic qualifications.
Most notably, last year you could qualify for the full credit with an income up to $125,000. Now the qualifying threshold for the full credit is back to its $15,000 norm.
As the first tax year in something like the pre-pandemic norm, the 2022 tax season will probably be a rocky one. In this case, forewarned is forearmed.
Knowing in advance that your tax refund might not boost your bank account as much as you hoped can help you avoid any major budget woes.
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