Tax Law Changes for the 2022 Filing Season
There have been some changes to the tax laws which you need to be aware of as you prepare for the tax filing season.
THIRD-PARTY NETWORK TRANSACTIONS
Taxpayers who receive money from third party networks, PayPal for example, must report all funds received as income on their return, unless the taxpayer can show that the funds were received from a non-taxable source. The American Rescue Plan Act of 2021 requires the third-party network to issue a 1099-K to the person who received the funds (the taxpayer) if the amount of the funds received in a transaction or series of transactions during 2022 exceeded $600. Prior to 2022, 1099-Ks were only issued if the number of transactions exceeded 200 and the aggregate amount of the transactions exceeded $20,000.
After announcing that third party networks would be required to issue 1099-Ks to all persons receiving over $600 during 2022 by January 31, 2023, the IRS announced on December 23, 2022 that implementation of the requirement would be delayed and that 2022 would be a transition year. The IRS determined that the transition period was necessary in order to make sure that the 1099-Ks were issued only to taxpayers who should receive them. The IRS determined that more time was needed to educate taxpayers, tax preparers, and software developers regarding the reporting of amounts received from third party networks and to facilitate tax compliance by the third-party network providers and taxpayers.
Taxpayers who receive income from third party networks may receive a 1099-K in January 2023. For taxpayers who receive a 1099-K, the IRS is working rapidly to provide instructions so that taxpayers understand what to do. Taxpayers who receive funds from third party networks are still required to report it on their return if the income is taxable whether or not the taxpayer receives a 1099-K from the third party network.
The major changes made to tax credits are:
- The child tax credit will be reduced from $3,600 per dependent to $2,000.
- The earned income tax credit for taxpayers with no children will be reduced from $1,500 to $500.
- The child and dependent credit will be reduced from a maximum of $8,000 to $2,100.
- Taxpayers may still qualify for temporarily expanded eligibility for the premium tax credit.
- The rules for determining eligibility claim a tax credit for clean vehicles have changed. Speak to your tax professional to determine how these changes may affect you.
Those taxpayers who are eligible for the Child Tax Credit, Earned Income credit and Child and Dependent Care Credit will likely receive a significantly smaller refund this year when compared to last year.
The above-the-line charitable deduction is no longer available. During COVID, taxpayers could take up to a $600 charitable donation tax deduction on their tax returns. However, in 2022, those who take a standard deduction may not take an above-the-line deduction for charitable donations.