Tax Changes and Key Amounts for the 2022 Tax Year

Child Tax Credit

Major changes were made to the child tax credit for 2021 – but they were only temporary. The credit amount was increased, the credit was made fully refundable, children up to 17 years of age qualified, and half the credit amount was paid in advance through monthly payments from July to December last year. President Biden and Congressional Democrats tried to extend these enhancements for at least one more year, but they haven't been able to get that done so far (and probably won't be able to later).

As a result, the child tax credit reverts back to its pre-2021 form for the 2022 tax year. That 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 don't 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. And there will be no monthly advance payments of the credit in 2022.

Child and Dependent Care Tax Credit

Significant improvements were also made to the child and dependent care credit for 2021. But, again, the changes only applied for one year.

By way of comparison, the 2021 credit was worth 20% to 50% of up to $8,000 in eligible expenses for one qualifying child/dependent or $16,000 for two or more. The percentage decreased as income exceeded $125,000. When you combine the top percentage and the expense limits, the maximum credit for 2021 was $4,000 if you had one qualifying child/dependent (50% of $8,000) or $8,000 if you had more than one (50% of $16,000). The credit was also fully refundable in 2021.

For 2022, the child and dependent care credit is non-refundable. The maximum credit percentage also drops from 50% to 35%. Fewer care expenses are eligible for the credit, too. For 2022, the credit is only allowed for up to $3,000 in expenses for one child/dependent and $6,000 for more than one. When the 35% maximum credit percentage is applied, that puts the top credit for the 2022 tax year at $1,050 (35% of $3,000) if you have just one child/dependent in your family and $2,100 (35% of $6,000) if you have more. In addition, the full child and dependent care credit will only be allowed for families making less than $15,000 a year in 2022 (instead of $125,000 per year). After that, the credit starts to phase-out.

Earned Income Tax Credit

More workers without qualifying children were able to claim the earned income tax credit (EITC) on their 2021 tax return, including both younger and older Americans. The "childless EITC" amounts were higher, too. However, once again, those enhancements expired at the end of last year.

Without the 2021 improvements in place, the minimum age for a childless worker to claim the EITC jumps back up to 25 for 2022 tax returns (it was 19 in 2021). The maximum age limit (65 years of old), which was eliminated for the 2021 tax year, is also back in play for 2022. The maximum credit available for childless workers also plummets from $1,502 to $560 for the 2022 tax year. Expanded eligibility rules for former foster youth and homeless youth that applied for 2021 are dropped as well. In addition, the rule allowing you to use your 2019 earned income to calculate your EITC if it boosted your credit amount no longer applies.

There are also several inflation-based adjustments that modify the EITC for the 2022 tax year. For example, the maximum credit amount is increased from $3,618 to $3,733 for workers with one child, from $5,980 to $6,164 for workers with two children, and from $6,728 to $6,935 for workers with three or more children. The earned income required to claim the maximum EITC is also adjusted annually for inflation. For 2022, it's $10,980 if you have one child ($10,640 for 2021), $15,410 if you have two or more children ($14,950 for 2021), and $7,320 if you have no children ($7,100 for 2021).

The EITC phase-out ranges are adjusted each year to account for inflation, too. For 2022, the credit starts to phase out for joint filers with children if the greater of their adjusted gross income (AGI) or earned income exceeds $26,260 ($25,470 for 2021). It's completely phased out for those taxpayers if their AGI or earned income is at least $49,622 if they have one child ($48,108 for 2021), $55,529 if they have two children ($53,865 for 2021), or $59,187 if they have three or more children ($57,414 for 2021). For other taxpayers with children, the 2022 phase-out ranges are $20,130 to $43,492 for people with one child ($19,520 to $42,158 for 2021), $20,130 to $49,399 for people with two children ($19,520 to $47,915 for 2021), and $20,130 to $53,057 for people with more than two children ($19,520 to $51,464 for 2021). If you don't have children, the 2022 phase-out range is $15,290 to $22,610 for joint filers ($14,820 to $21,920 for 2021) and $9,160 to $16,480 for other people ($8,880 to $15,980 for 2021).

Finally, the limit on a worker's investment income is increased to $10,300 ($10,000 for 2021).

Recovery Rebate Credit

Americans were thrilled last March to hear they were getting a third stimulus check in 2021. Those checks were for up to $1,400, plus an additional $1,400 for each dependent in your family. (Use our Third Stimulus Check Calculator to see you how much money you should have gotten.) But some people who were eligible for a third-round stimulus check didn't receive a payment or got less than what they should have received. For those people, relief was available in the form of a 2021 tax credit known as the recovery rebate credit.

However, there are no stimulus check payments in 2022. As a result, there is no recovery rebate credit for the 2022 tax year.

Premium Tax Credit

The premium tax credit helps eligible Americans cover the premiums for health insurance purchased through an Obamacare exchange (e.g., HealthCare.gov (opens in new tab)). The American Rescue Plan Act (ARPA), which was signed into law in March 2021, enhanced the credit for 2021 and 2022 to lower premiums for people who buy coverage on their own.

But one of the enhancements that helped unemployed people doesn't apply in 2022. Under the ARPA, you were considered to have met the premium tax credit's household income requirements for the 2021 tax year if you (or your spouse if you filed a joint return) received, or were approved to receive, unemployment compensation for any week in 2021. However, if you receive unemployment benefits in 2022, you must satisfy all the normal eligibility requirements.

Extension of enhancements. The Inflation Reduction Act extended most of the premium tax credit enhancements through 2025. Unfortunately, though, the relaxed eligibility requirements for people who received unemployment compensation in 2021 was not extended to 2022 or beyond.

Tax Brackets

Although the tax rates didn't change, the income tax brackets for 2022 are slightly wider than for 2021. The difference is due to inflation during the 12-month period from September 2020 to August 2021, which is used to figure the adjustments.

2022 Tax Brackets for Single/Married Filing Jointly/Head of Household

Long-Term Capital Gains Tax Rates

Tax rates on long-term capital gains (i.e., gains from the sale of capital assets held for at least one year) and qualified dividends did not change for 2022. However, the income thresholds to qualify for the various rates were adjusted for inflation.

In 2022, the 0% rate applies for individual taxpayers with taxable income up to $41,675 on single returns ($40,400 for 2021), $55,800 for head-of-household filers ($54,100 for 2021) and $83,350 for joint returns ($80,800 for 2021).

The 20% rate for 2022 starts at $459,751 for singles ($445,851 for 2021), $488,501 for heads of household ($473,751 for 2021) and $517,201 for couples filing jointly ($501,601 for 2021).

The 15% rate is for filers with taxable incomes between the 0% and 20% break points.

The 3.8% surtax on net investment income stays the same for 2022. It kicks in for single people with modified AGI over $200,000 and for joint filers with modified AGI over $250,000.

For more on long-term capital gains tax rates, see What Are the Capital Gains Tax Rates for 2022 vs. 2021?

Standard Deduction

The standard deduction amounts were increased for 2022 to account for inflation. Married couples get $25,900 ($25,100 for 2021), plus $1,400 for each spouse age 65 or older ($1,350 for 2021). Singles can claim a $12,950 standard deduction ($12,550 for 2021) — $14,700 if they're at least 65 years old ($14,250 for 2021). Head-of-household filers get $19,400 for their standard deduction ($18,800 for 2021), plus an additional $1,750 once they reach age 65 ($1,700 for 2021). Blind people can tack on an extra $1,400 to their standard deduction ($1,350 for 2021). That jumps to $1,750 if they're unmarried and not a surviving spouse ($1,700 for 2021).

1099-K Forms

Starting with the 2022 tax year, third-party payment settlement networks (e.g., PayPal and Venmo) will send you a Form 1099-K if you are paid over $600 during the year for goods or services, regardless of the number of transactions. Previously, the form was only sent if you received over $20,000 in gross payments and participated in more than 200 transactions. The gross amount of a payment doesn't include any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts.

This change to the reporting threshold means more people than ever will get a 1099-K form next year that they will use when filling out their income tax returns for the 2022 tax year. However, remember that 1099-K reporting is only for money received for goods and services. It doesn't apply to payments from family and friends.

Charitable Gift Deductions

The "above-the-line" deduction for up to $300 of charitable cash contributions ($600 for married couple filing a joint return) expired at the end of 2021. As a result, it isn't available for the 2022 tax year (it was available for 2020 and 2021). Only people who claimed the standard deduction on their tax return (rather than claiming itemized deductions on Schedule A) were allowed to take this deduction.

The 2020 and 2021 suspension of the 60%-of-AGI limit on deductions for cash donations by people who itemize also expired, so the limit is back in place starting with the 2022 tax year.

Retirement Savings

Here's some good news for retirees: The IRS updated the table used to calculate required minimum distributions (RMDs) to account for longer life expectancies beginning in 2022. That means RMDs should be a bit smaller starting in 2022 than they were before.

For people who are still saving for retirement, many key dollar limits on retirement plans and IRAs are higher in 2022. For example, the maximum contribution limits for 401(k), 403(b) and 457 jumps from $19,500 to $20,500 for 2022, while people born before 1973 can once again put in $6,500 more as a "catch-up" contribution. The 2022 cap on contributions to SIMPLE IRAs is $14,000 ($13,500 in 2021), plus an extra $3,000 for people age 50 and up.

The 2022 contribution limit for traditional IRAs and Roth IRAs stays steady at $6,000, plus $1,000 as an additional catch-up contribution for individuals age 50 and up. However, the income ceilings on Roth IRA contributions went up. Contributions phase out in 2022 at adjusted gross incomes (AGIs) of $204,000 to $214,000 for couples and $129,000 to $144,000 for singles (up from $198,000 to $208,000 and $125,000 to $140,000, respectively, for 2021).

Deduction phaseouts for traditional IRAs also start at higher levels in 2022, from AGIs of $109,000 to $129,000 for couples and $68,000 to $78,000 for single filers (up from $105,000 to $125,000 and $66,000 to $76,000 for 2021). If only one spouse is covered by a plan, the phaseout zone for deducting a contribution for the uncovered spouse starts at $204,000 of AGI and ends at $214,000 (they were $198,000 and $208,000 for 2021).

More lower-income people may be able to claim the "saver's credit" in 2022, too. This tax break can be worth up to $1,000 ($2,000 for joint filers), but you must contribute to a retirement account and your adjusted gross income (AGI) must be below a certain threshold to qualify. For 2022, the income thresholds are $34,000 of adjusted gross income (AGI) for single filers and married people filing a separate return ($33,000 for 2021), $68,000 for married couples filing jointly ($66,000 for 2021), and $51,000 for head-of-household filers ($49,500 for 2021).

Adoption of a Child

For 2022, the adoption credit can be taken on up to $14,890 of qualified expenses ($14,440 for 2021). The full credit is available for a special-needs adoption, even if it costs less. The credit begins to phase out for filers with modified AGIs over $223,410 and disappears at $263,410 ($214,520 and $254,520, respectively, for 2021).

The exclusion for company-paid adoption aid was also increased from $14,440 to $14,890 for 2022.

Student Loan Interest Deduction

We're all waiting to see if and when President Biden will cancel student loan debt. But even if your student loan debt isn't cancelled (or only some of it is forgiven), you may be able to deduct up to $2,500 of student loan interest paid each year. However, the credit amount is gradually reduced to zero if your modified AGI is over a certain amount.

If you're filing anything other than a joint return, the phase-out range did not change for the 2022 tax year. The credit amount still starts dropping if your modified AGI is over $70,000 and is reduced to zero once your modified AGI hits $85,000. However, for married couples filing a joint return, the phase-out range is adjusted for 2022. It kicks in at $145,000 ($140,000 for 2021), while the credit is fully phased out if modified AGI exceeds $175,000 ($170,000 for 2021).

Teacher Expenses

For the 2022 tax year, teachers and other educators who dig into their own pockets to buy books, supplies, COVID-19 protective items, and other materials used in the classroom can deduct up to $300 of these out-of-pocket expenses ($250 for 2021). The maximum deduction for 2022 jumps to $600 for a married couple filing a joint return if both spouses are eligible educators – but not more than $300 each.

An "eligible educator" is anyone who is a kindergarten through 12th grade teacher, instructor, counselor, principal, or aide in a school for at least 900 hours during a school year. Homeschooling parents can't take the deduction.

This is an "above-the-line" deduction. So, you don't have to itemized to claim it.

Kiddie Tax

The kiddie tax has less bite in 2022. The first $1,150 of a child's unearned income is tax-free if the child is 18 years old or younger, or a full-time student under 24. The next $1,150 is taxed at the child's rate. Any excess over $2,300 is taxed at the parent's rate. (For 2021, only the first $1,100 was exempt and the next $1,100 was taxed at the child's rate.)

Residential Clean Energy Credit

The Inflation Reduction Act, which was signed into law on August 16, 2022, renamed the former Residential Energy Efficient Property Credit so that it's now called the Residential Clean Energy Credit. But, more importantly, the credit amount was increased starting with the 2022 tax year.

Before the Inflation Reduction Act, the credit was generally worth 26% of the cost to install qualifying electric, water heating, or temperature control systems for your home that use solar, wind, geothermal, biomass or fuel cell power. The credit percentage was also scheduled to drop to 23% in 2023 and then expire in 2024.

Now, the credit is increased to 30% starting in 2022. It eventually drops to 26% for 2033 and 22% for 2034, before the credit expires in 2035. In addition, it doesn't apply to biomass furnaces and water heaters anymore. However, starting in 2023, it will apply to battery storage technology with a capacity of at least three kilowatt hours.

Clean Vehicle Credit

The electric vehicle tax credit was also revised by the Inflation Reduction Act (including a name change to the Clean Vehicle Credit). Most of the amendments to the EV tax credit don't apply until 2023. However, there could be some impact on your 2022 tax return if you buy an electric vehicle this year.

One of the changes made by the Inflation Reduction Act requires final assembly of a qualifying clean vehicle to occur in North America. This requirement is effective for vehicles sold after August 16, 2022 (i.e., the date the legislation was signed into law). Therefore, if you purchase an electric vehicle between August 17 and the end of the year, you won't qualify for the existing credit for the purchase of a new electric vehicle if it wasn't assembled in North America.

To help determine if a vehicle satisfies this new requirement, the U.S. Department of Energy has a general list of vehicles with final assembly in North America on its website (opens in new tab). However, before buying a new electric vehicle, you should also check the National Highway Traffic Safety Administration's VIN number decoder (opens in new tab) to be absolutely make sure the exact vehicle you intend to purchase qualifies for the new credit (look for the "Plant Information" on the results page).

Two other new requirements could also trip up EV buyers in 2022. Under the new law, in order for an electric vehicle to qualify for the credit, a certain percentage of the critical minerals in the vehicle's battery must be (1) extracted or processed in the U.S. or a country that has a free trade agreement with the U.S., or (2) recycled in North America. In addition, a certain percentage of the vehicle's battery components must be manufactured or assembled in North America. These requirements don't take effect until the Treasury Department issues proposed guidance about them. The guidance must be issued by December 31, 2022. So, if the guidance is issued earlier in the year, these requirements potentially could apply to some EV purchases in 2022.

For some people, there's a loophole available that will allow them to bypass any of the new requirements. If you purchased a new electric vehicle (or entered into a written binding contract to do so) before August 16, 2022, but you don't actually take possession of the vehicle until August 16 or later, you can still claim the credit based on the old rules in place before August 16. So, for example, the final assembly requirement wouldn't apply in that situation.

Bonds Used for Education

The income caps are higher in 2022 for tax-free EE and I bonds used for education. The exclusion starts phasing out above $128,650 of modified AGI for couples and $85,800 for others ($124,800 and $83,200 for 2021). It ends at modified AGI of $158,650 and $100,800, respectively ($154,800 and $98,200 for 2021). The savings bonds must be redeemed to help pay for tuition and fees for college, graduate school or vocational school for the taxpayer, spouse or a dependent.

Parking and Transportation Benefits

Employers can provide a little more to their workers in 2022 when it comes to parking and transportation-related fringe benefits. The 2022 cap on employer-provided tax-free parking goes up from $270 to $280 per month. The 2022 exclusion for mass transit passes and commuter vans is also $280 ($270 in 2021).

Americans Working Abroad

U.S. taxpayers working abroad have a larger foreign earned income exclusion in 2022. It jumped from $108,700 for 2021 to $112,000 for 2022. (Taxpayers claim the exclusion on Form 2555 (opens in new tab).)

The standard ceiling on the foreign housing exclusion is also increased from $15,218 to $15,680 for 2022 (although overseas workers in many high-cost locations around the world qualify for a significantly higher exclusion).

Payroll Taxes

The Social Security annual wage base is $147,000 for 2022 (that's a $4,200 hike from 2021). The Social Security tax rate on employers and employees stays at 6.2%. Both workers and employers continue to pay the 1.45% Medicare tax on all compensation in 2022, with no cap. Workers also pay the 0.9% Medicare surtax on 2022 wages and self-employment income over $200,000 for singles and $250,000 for couples. The surtax doesn't hit employers, though.

The nanny tax threshold went up to $2,400 for 2022, which was a $100 increase from 2021.

Standard Mileage Rates

Thanks to skyrocketing gas prices, the IRS took the unusual step of adjusting the standard mileage rates for 2022 in the middle of the year. Therefore, the rates applicable during the first half of the year are different than the rates used for the second half. The mileage rates are used to calculate tax deductions for the use of an automobile (i.e., a car, pickup truck, or van) for business purposes, medical-related travel, and moving expenses for active-duty members of the military.

From January 1 to June 30, the 2022 standard mileage rate for business driving is 58.5¢ per mile (56¢ per mile in 2021). The mileage allowance for medical travel and military moves for the same time span is 18¢ per mile (16¢ per mile in 2021).

From July 1 to December 31, the 2022 mileage rate for use of an automobile for business purposes rises to 62.5¢ per mile. The standard rate for medical-related driving and military moving expenses jumps to 22¢ per mile for the second half of 2022.

Note that the standard mileage rate for the use of an automobile for charitable purposes didn't change from 2021 to any part of 2022. It stayed put at 14¢ a mile because it's fixed by law.

Long-Term Care Insurance Premiums

The limits on deducting long-term care insurance premiums are higher in 2022 for one age group. Taxpayers who are age 61 to 70 can deduct up to $4,510 for 2022, which is a $10 decrease from the 2021 amount.

The 2022 deduction limits for all age groups are the same as the 2021 amounts. Here's the complete list of limits by age:

• 40 years old or less = $450
• 41 to 50 years old = $850
• 51 to 60 years old = $1,690
• 61 to 70 years old = $4,510
• 71 years of age or older = $5,640

For most people, long-term care premiums are medical expenses deductible only by itemizers on Schedule A. However, self-employed people can deduct them on Schedule 1 of the 1040.

Health Savings Accounts (HSAs)

The annual cap on deductible contributions to health savings accounts (HSAs) rose in 2022 from $3,600 to $3,650 for self-only coverage and from $7,200 to $7,300 for family coverage. People born before 1968 can put in $1,000 more (same as for 2021).

Qualifying insurance policies must limit out-of-pocket costs in 2022 to $14,100 for family health plans ($14,000 in 2021) and $7,050 for people with individual coverage ($7,000 in 2021). Minimum policy deductibles remain at $2,800 for families and $1,400 for individuals.

For 2023 HSA-related amounts, see HSA Contribution Limits for 2023 Are Out.

Flexible Spending Accounts (FSAs)

For 2022, the limit on employee contributions to a healthcare flexible spending account (FSA) is $2,850, which is $100 more than the 2021 limit. If the employer's plan allows the carryover of unused amounts, the maximum carryover amount for 2022 is $570 ($550 for 2021).

On the other hand, workers can't contribute as much to a dependent care FSA in 2022 as they could in 2021. Last year, as a COVID-relief measure, a family could sock away up to $10,500 in a dependent care FSA without paying tax on the contributions. But for 2022, the normal limit of $5,000-per-year on tax-free contributions applies once again.

Alternative Minimum Tax (AMT)

There's good news for anyone worried about getting hit with the alternative minimum tax: AMT exemptions ticked upward for 2022. They increased from $114,600 to $118,100 for couples and from $73,600 to $75,900 for single filers and heads of household. The phaseout zones for the exemptions start at higher income levels for the 2022 tax year as well — $1,079,800 for couples and $539,900 for singles and household heads ($1,047,200 and $523,600, respectively, for 2021).

In addition, the 28% AMT tax rate kicks in a bit higher in 2022 — above $206,100 of alternative minimum taxable income. The rate applied to AMTI over $199,900 for 2021.

Tax "Extenders"

There's a group of tax breaks that are constantly scheduled to expire, but that keep getting extended by Congress for another year or two. These tax breaks are collectively referred to as "tax extenders."

The Inflation Reduction Act extended two of these tax breaks that are available to individuals – the Nonbusiness Energy Property Credit and Alternative Fuel Vehicle Refueling Property Credit. So, they will continue to apply for the 2022 tax year and beyond.

However, Congress hasn't passed legislation to renew any of the other "tax extender" deductions and credits that expired at the end of 2021. Most of these expired tax breaks were for businesses, but the following tax breaks that expired last year impacted individual taxpayers:

• Mortgage insurance premiums deduction;
• Health coverage tax credit for medical insurance premiums paid by certain Trade Adjustment Assistance recipients and people whose pension plans were taken over by the Pension Benefit Guaranty Corporation;
• Fuel cell motor vehicle credit; and
• Two-wheeled plug-in electric vehicle credit.

At some point, lawmakers may swoop in and extend some or all of the remaining expired tax breaks once again as they have in the past. They sometimes even make the extensions retroactive, so the tax breaks list above could still be available for the 2022 tax year like the tax credits extended by the Inflation Reduction Act. We'll just have to wait and see what Congress decides to do with these "tax extender" deductions and credits – stay tuned for future developments.

Self-Employed People

If you're self-employed, there are a couple of 2022 tax law changes that could impact your bottom line. First, a key dollar threshold on the 20% deduction for pass-through income was increased for 2022. Self-employed people (along with owners of LLCs, S corporations and other pass-through entities) can deduct 20% of their qualified business income, subject to limitations for individuals with taxable incomes in excess of $340,100 for joint filers and $170,050 for others ($329,800 and $164,900, respectively, for 2021).

Second, tax credits that were allowed for self-employed people who couldn't work for a reason that would have entitled them to pandemic-related sick or family leave if they were an employee have expired and aren't available for the 2022 tax year.

Estate & Gift Taxes

The lifetime estate and gift tax exemption for 2022 jumped from $11.7 million to $12.06 million — $24.12 million for couples if portability is elected by timely filing IRS Form 706 (opens in new tab) after the death of the first-to-die spouse. In addition, the deadline for electing portability is pushed back from two years to five years for smaller estates that aren't required to file Form 706 because their assets don't exceed the exemption amount.

The special estate tax valuation of real estate also increases for 2022. For the estate of a person dying this year, up to $1.23 million of farm or business real estate can receive discount valuation (up to $1.19 million in 2021), letting the estate value the realty at its current use instead of fair market value.

More estate tax liability qualifies for an installment payment tax break, too. If one or more closely held businesses make up greater than 35% of a 2022 estate, as much as $656,000 of tax can be deferred and the IRS will charge only 2% interest (up to $636,000 for 2021).

Finally, the annual gift tax exclusion for 2022 rises from $15,000 to $16,000 per donee. So, you can give up to $16,000 ($32,000 if your spouse agrees) to each child, grandchild or any other person in 2022 without having to file a gift tax return or tap your lifetime estate and gift tax exemption.