2022 Federal Tax Changes: The American Rescue Plan - 1 year later

2022 Federal Tax Changes: The American Rescue Plan Act of 2021 – One Year Later

In response to the hardship impact of COVID-19, the American Rescue Plan Act of 2021 was enacted to provide a plethora of federal income tax breaks. Most of these changes were only applicable for 2021 – which means there are notable differences that must be considered in planning for the 2022 tax year.

This article highlights some significant current year tax law changes, as well some new policies and procedures from the IRS.

Individual Changes: Returning to Pre-Covid Rates

• Child Tax Credit – Following major changes for 2021, the Child Tax Credit reverts to its pre-2021 levels for 2022. The 2022 credit drops back down to $2,000 per child and the qualifying age for children has returned to 16.
• Dependent Care Tax Credit - Similarly, after seeing pandemic related increases to the dependent care credit in 2021, the amounts drop back to pre-Covid 19 levels. The maximum credit falls to $1,050 for one qualifying dependent ($4,000 last year), and $2,100 for more than one ($8,000 last year.) Additionally, families are only eligible for the maximum credit rates when making under $15,000 this year.
• Earned Income Tax Credit (EITC) - The age range for a childless individual to claim EITC returns to 25-65 years (any adult over 18 was eligible in 2021.) The maximum credit for childless workers drops to $560. Maximum EITC amounts for people with children did not see significant changes, they were increased slightly to adjust for inflation.
• Flexible Spending Accounts (FSA) - Employee contribution limits to dependent care FSAs were decreased back to the pre-pandemic amount of $5,000 ($10,500 last year).

Tax Changes for Businesses

• 1099-K - Beginning in 2022, Form 1099-Ks will be distributed to all individuals paid over $600 for goods and services through third party settlement networks (e.g., PayPal, Venmo, Cashapp). Previously, this form was only for people who made over $20,000 in 200+ separate transactions. See our earlier blog article for more information about 1099-K reporting New 1099-K Requirements.
• Standard Mileage Rates – Prior to the recent surge in gas prices, the IRS initially increased the rate for business related mileage from $0.56 per mile to $0.585 per mile for 2022. However, with the increase in fuel costs, in June the IRS announced that the mileage rate would be increased to $0.625 per mile for the second half of 2022. See our previous blog article IRS increases mileage rate for more information. Also, you may want to review our blog article Tax Considerations for Business Vehicle Operation in Inflationary Times for additional tax tips for business use of vehicles.
• Self Employed Individuals – The threshold for the 20% deduction of pass-through income was increased in 2022. Self-employed business owners can deduct 20% of their qualified business income if they make under $340,100 filing jointly, or $170,050 filing with any other designation. In 2021, those thresholds were $329,800, and 164,900 respectively.

Final Thoughts

This article explains significant tax law changes resulting from the expiration of certain provisions of the American Rescue Plan Act of 2021, as well as some updated information from the IRS. Awareness of annual tax law changes is an integral part of the tax planning process. 

For any additional information or tax law questions, please contact your Herbein tax consultant at the form below. As always, we will continue to monitor these and other tax developments and will provide timely updates as appropriate. Also, see our previous tax blog article 2022 Mid-Year Tax Planning for some timely tax planning ideas.

Article contributed by Samuel Greenberg