The past two years have been different in many ways, especially on the finance and taxation front. With the IRS directly responsible for the stimulus check, many payments were made by way of tax refunds, with most coming in for beneficiaries as refunds. The payments were made way ahead of the tax filing deadline.
Both in 2020 and 2021, filers did not have to wait to file their returns before getting their tax rebates. Payments came in way before and the Child Tax Credit stimulus check is one great example.
But the 2022 tax year will turn out differently as the expanded CTC tax refund and multiple other income tax breaks have returned to the pre-pandemic levels and the refunds will be way smaller and will come in only after the beneficiaries have filed their income tax returns. It will no longer come in as an advance.
With Americans moving into the last month of the 2022 tax year, it is high time to get your tax papers in order and get a running start for the income tax season. But you will see many changes in the sum of your income tax refunds.
Most of the generous COVID-19 pandemic support measures that came in as tax refunds ended by 2021. They included the child and also the dependent care credit and the expanded CTC stimulus checks which were expanded from a fixed $2,000 per child a year to between $3,000 and $3,600 a year depending on the age of the child.
Children aged up to 17 years received the CTC stimulus check. those aged up to 6 years received $3,600 while those aged between 6 and 17 years received $3,000.
2022 Is A Year Of Reset For Income Tax Refunds
Many of the dramatic changes that were part of the 2020 and 2021 tax years will revert to the pre-pandemic system in 2022. This will lead to a drastic change in refunds and also the balance which could come as a disappointment for most low and moderate-income individuals and households.
Changes have also been made with fresh regulations. For instance, 3rd party payment applications like CashApp, Venmo, and PayPal will in the future be declaring money to the Internal Revenue Service that freelancers have reported as earnings throughout the year.
If the Loan Forgiveness program for students comes through, it will be exempt from taxation by the federal authorities. But some states might still impose taxes on it. All crypto activities must also be reported to the IRS. So it is apparent that there will be some significant changes in the income tax structure and individuals and joint filers should be prepared in advance for the upcoming income tax season.
The 2022 Standard Deduction Is Set To Increase
Under normal circumstances, the standard deduction increases each year moderately and also with the inflation rate. For the 2022 income tax return to be filed in the first quarter of 2023, the standard deduction has gone up by $400 to $12,950 for individual filers while it is up by $800 to $25,900 for the case of married couples filing jointly.
Most income tax filers claim the standard deduction as the first stage of reduction of their taxable income. For those who received a traditional system of payment through paychecks from employers, and do not get any credits or special deductions, the standard deduction that is the most sensible income tax deduction.
Those who have individual decisions and expenses to claim, such as tax breaks on self-employment, would not go in for standard deduction.
The 2020 Income Tax Brackets Are Also Poised To Be Higher
The income tax bracket for 2022 has also been raised to take into account the dramatic increase in prices caused by record inflation that has touched a 4-decade high record. The income bracket that you are pegged in has to do with the tax amount based on the AGI.
The AGI Tax Refund is the amount that you have earned before the taxes are deducted and is arrived at after certain specific deductions. The AGI is the beginning point for determining your income tax and also defining the deduction that you will be allowed to help lower your overall tax burden.
Though the overall Tax Refund changes have been marginal, those at the very end of the higher 2021 tax bracket may find themselves brought down to a lower rate of income tax for their 2022 income tax returns to be filed in the first quarter of 2023.
The tax bracket for 2022 single filers is now 10% for a taxable income of $10,275 or below. It goes up to $162,718 for a taxable income of $539,901 plus 37% for income above that.
For joint taxpayers for the 2022 tax returns, the lowest rate is 10% for a taxable income of $20,550 or lower. It goes up to $174,253.5 for a joint income of $647,851 plus 37% for any income above that.
Tax Refund To Be Most Affected As The CTC Payments Returns To Normal
The temporary expansion of the annual Child Tax Credit stimulus check had a significant effect in increasing the Tax Refund for 2021. It’s almost double and includes eligibility for additional dependent kids and also offers advancement payments. This will not be present in the 2022 income tax returns to be filed in the first quarter of next year.
It is back to the pre-pandemic level for the expanded Child Tax Credit and will have a significant effect on family finances and child poverty.
The CTC Tax Refund is back to pre-pandemic levels of $2,000 for each child and dependent. Also, it is now accessible to children below 17 years. The credit was refundable in 2022 and will become partly refundable to parents in the low-income group. And one of the most significant drawbacks for families is that tax refunds are no longer effective.
Partially refundable amounts ensure that individuals and couples receive only one share of their credit as refunds. This happens even though the total amount applies to the tax bill. But while federal remunerations in this category have decreased, several states have come forward with CTC benefits for their residents for next year.
