New Rules, Same Ways To Reduce Your Tax Bill
With new and changing laws every year, it is increasingly easy for taxpayers to overlook deductions and credits that may reduce their tax liability. This year, we want to highlight the American Plan Rescue Act of 2021—which fleetingly increased specific tax credits and added a special rule for charity deductions. These programs are now ending.
However, there are still ways to reduce your tax bill (or increase your refund). Check out these six credits and deductions for an easy tax filing:
1. Child Tax Credit
What is it?
The Child Tax Credit is a tax benefit for people with qualifying children. [5]
What’s new?
In 2021 only, the maximum child tax credit was expanded to $3,600 for each qualifying child. In 2022, the child tax credit returned to its original 2019 amount—meaning, taxpayers may be eligible for up to $2,000 per eligible child.
2. Child and Dependent Care Credit
What is it?
The Child and Dependent Care Credit is for those who paid expenses to care for a child or qualifying person so they could go to work, look for work, or attend school. [4]
What’s new?
Calculated based on income and the percentage of expenses that you incur for the care of qualifying persons, the Child and Dependent Care Credit reached its maximum amount of $8,000 in 2021. In 2022, it tops out at $2,100.
3. Earned Income Credit
What is it?
The Earned Income Tax Credit helps low- to moderate-income workers and families reduce the taxes owed and potentially increase refunds. [3]
What’s new?
Broadly, earned income tax credits are lower in 2022. Confirm your new income eligibility and credits for 2022 with the IRS here.
4. Premium Tax Credit
What is it?
The Premium Tax Credit helps individuals and families cover the premiums for health insurance purchased through the Health Insurance Marketplace. [6]
What’s new?
The American Rescue Plan Act momentarily expanded eligibility for the premium tax credit by including taxpayers with household incomes earning 400% over the federal poverty line.
5. Clean Energy Vehicle Credit
What is it?
The Clean Energy Vehicle Credit is for those who purchased a new plug-in electric vehicle or fuel cell vehicle. [8]
What’s new?
Since 2008, tax credits of up to $7,500 have been available for qualifying electric and plug-in hybrid vehicles, but the Inflation Reduction Act in 2022 enacted new requirements and a revised list of qualifying vehicles. Find out if your vehicle purchase qualifies here.
6. Charitable Contribution Deductions
What is it?
This deduction is available to taxpayers who made cash or non-cash contributions to a qualifying organization. [7]
What’s new?
In 2021, charitable donations were deductible as a separate line item even if you took the standard deduction—but in 2022, you’ll need to itemize your deductions on Schedule A in order to claim.
Questions?
Tax laws are increasingly complicated—but we’re here to optimize your tax return. Get started with our Tax and Accounting Services here.
Resources:
[1] https://www.experian.com/blogs/ask-experian/can-you-still-get-tax-credit-for-electic-car/
[2] https://www.experian.com/blogs/ask-experian/tax-filing-tips/
[3] https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc#:~:text=The%20Earned%20Income%20Tax%20Credit,and%20maybe%20increase%20your%20refund
[4] https://www.irs.gov/credits-deductions/individuals/child-and-dependent-care-credit-information
[5] https://www.irs.gov/credits-deductions/individuals/child-tax-credit
[6] https://www.irs.gov/affordable-care-act/individuals-and-families/the-premium-tax-credit-the-basics
[7] https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions
[8] https://www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after#:~:text=You%20may%20qualify%20for%20a%20credit%20up%20to%20%247%2C500%20under,cell%20electric%20vehicle%20(FCV)