On March 11, 2021 the American Rescue Plan was signed into law to provide financial relief for millions of Americans. The plan included a third round of stimulus relief and expanded tax benefits that families could claim on their 2021 taxes (the taxes filed in 2022), however these tax benefits will either revert to what they were before the American Rescue Plan or expire.
You may have claimed American Rescue Plan tax benefits and may have questions like:
- What are the tax benefits that are changing or reverting to previous tax rules?
- How is Child Tax Credit changing and how much is it for tax year 2022?
- How is Child and Dependent Care Credit changing for tax year 2022?
- How is Earned Income Tax Credit changing for tax year 2022?
- Was tax year 2021 the last year I could claim the Recovery Rebate Credit?
- Was tax year 2021 the last year I could claim Self-Employed Sick and Family Leave Credits?
- Can I still deduct up to $300 in cash charitable donations if I claim the standard deduction?
Here are answers to help you understand how the key tax benefits will change in the upcoming tax season.
What are the tax benefits that are changing or reverting to previous tax rules?
- Child Tax Credit
- Child and Dependent Care Credit
- Earned Income Tax Credit
- Recovery Rebate Credit
- Sick and Family Leave Credits for Self-Employed
- Charitable Contribution Deduction
Note the IRS announced a delay in reporting thresholds for third-party settlement organizations set to take effect for the upcoming tax filing season. As a result of this delay, TPSOs will not be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower, $600 threshold amount enacted as part of the American Rescue Plan of 2021. Well known third-party settlement organizations (TPSOs) include Venmo, PayPal and CashApp.
Per the IRS, this means that for tax year 2022 and tax year 2023 the existing 1099-K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect.
How is Child Tax Credit changing and how much is it for tax year 2022?
Tax Year 2021
Under the American Rescue Plan, the Child Tax Credit was expanded in several ways for tax year 2021
- The Child Tax Credit increased from $2,000 to up to $3,600 for each dependent child under six and up to $3,000 for each dependent child ages 6 to 17.
- It was also the first time you could claim the Child Tax Credit for a dependent child that was 17.
- The credit was also fully refundable – that means that you were eligible for the credit even if you didn’t owe taxes.
- For the first time, advance payments were issued for half of the Child Tax Credit for each dependent child.
- You were eligible for the full credit if your income was under $150,000 for couples who are married filing jointly and $75,000 if you were single or $112,500 as head of household.
Tax Year 2022
For tax year 2022, the Child Tax Credit reverts back to the benefits available prior to the American Rescue Plan as follows:
- Reverts back to up to $2,000 for 2022 – 2025
- Each dependent child must be under age 17
- Refundable up to $1,400, but no longer fully refundable
- Advance payments were not issued for tax year 2022
- The credit is available if you earn up to $200,000 as single taxpayer or head of household (or up to $400,000 if you are a married couple filing jointly)
How is Child and Dependent Care Credit changing for tax year 2022?
Tax Year 2021
Under the American Rescue Plan Act of 2021, huge changes were made expanding the Child and Dependent Care Credit for 2021 taxes only (the taxes you file in 2022). Changes for tax year 2021 included:
- The percentage and the child care expense thresholds changed, so you could get a credit up to 50% of $8,000 ($4,000) in child care expenses for one child under 13, an incapacitated spouse or parent, or another dependent so you could work and up to 50% of $16,000 in expenses ($8,000) If you have two or more dependents.
- Credit was refundable if you lived in the U.S. more than half the year. That means even if you didn’t owe any taxes, you were able to get all of the credit in the form of a refund.
- The 2021 Child and Dependent Care Credit amount began to phase out when adjusted gross income (AGI) reached over $125,000. With an AGI of $125,000 or less the credit is worth 50% of qualifying child care expenses. The credit percentage decreased for AGI over $125,000, and the credit is completely phased out for adjusted gross income of more than $438,000.
Tax Year 2022
For tax year 2022, the Child and Dependent Care Credit adjusts back to the pre-2021 provision and changes back to:
- Up to 35% of $3,000 ($1,050) of child care expenses for a dependent child under 13, an incapacitated spouse or parent, or another dependent so that you can work or look for work. If you have two or more dependents, the credit will be up to 35% of $6,000 in expenses ($2,100).
- The credit will be reduced at incomes over $15,000
How is Earned Income Tax Credit changing for tax year 2022?
Tax Year 2021
The Federal Earned Income Tax Credit was expanded for:
- Workers without kids and nearly tripled the maximum credit for those without kids.
- Eligibility was also extended for a wider range of filers, allowing taxpayers without kids to qualify if they were over 65 or between the ages of 19-25.
Tax Year 2022
- Age requirements revert back. Taxpayers with no kids have to be 25 or under 65 to claim the credit.
- Previous year income cannot be used to help you qualify for Earned Income Tax Credit
Note, the amount of Earned Income Tax Credit is adjusted for inflation every year and will be up to $6,935 with three or more kids in tax year 2022 ($6,728 for tax year 2021).
Was tax year 2021 the last year I could claim the Recovery Rebate Credit?
If you were eligible for the third stimulus up to $1,400 for you or your dependent child(including adult dependents) and you didn’t receive your stimulus payment, you were able to claim the Recovery Rebate Credit on your 2021 taxes, but the Recovery Rebate Credit will not be available on your 2022 taxes.
Was tax year 2021 the last year I could claim Self-Employed Sick and Family Leave Credits?
The American Rescue Plan extended refundable tax credits for sick leave and family leave through tax year 2021 for both eligible self-employed and small business owners, but the credit expires after tax year 2021.
Can I still deduct up to $300 in cash donations if I claim the standard deduction?
Tax Year 2021
COVID Relief was extended through tax year 2021 and allowed you to deduct up to $300 in cash donations($600 married filing jointly) on your 2021 taxes if you claimed the standard deduction.
Tax Year 2022
For tax year 2022, you can no longer claim the deduction for cash donations up to $300 ($600 married filing jointly) if you claim the standard deduction. If you can itemize your deductions you will still be able to claim your charitable deductions.
Still need to file your 2021 taxes? You still have time to file before the final extended tax deadline on October 17, 2022, but don’t forget to take advantage of these tax benefits that were expanded for tax year 2021 and that are either reverting to lower amounts or expiring.
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