Tax-Filing Facts for Working Families

Tax deductions. Alena Piatrova/Shutterstock

Tax season can be nerve-wracking for many American families. There are a lot of deductions that need to be taken advantage of, and the tax laws constantly change.

There are some changes this year that will affect your return. For example, COVID-era tax breaks have expired, which may reduce some families’ refunds. But it’s not all gloom.

Expanded Child Tax Credit Gone

One result of COVID-19 was the change to the Child Tax Credit. In 2021, the tax credit was $3,600 for children ages five and under. It was $3,000 for children ages six through 17. And in 2021, there was not an earned income requirement. So the higher Child Tax Credit could generate a refund, despite a lack of income.

But all of this has changed for the tax year 2022. The Child Tax Credit has gone back to 2020’s credit. It’s $2,000 per dependent child under the age of 17.

There is an earned income requirement. If you meet specific qualifications, it could be partially refundable up to $1,500.

Expanded Child and Dependent Care Credit Expired

One credit that is great for parents and guardians is the Child and Dependent Care Credit. It was also influenced by COVID-19. In 2021, the American Rescue Plan Act increased the credit. It was up to $4,000 for one qualifying person and $8,000 for two or more qualifying persons.

If you met specific qualifications, it was also refundable. So, you didn’t necessarily have to owe taxes to receive the refund.

That amount has changed. For the tax year 2022, the credit is now 20–35 percent, up to $3,000. It’s $6,000 for two or more dependents. The higher your adjusted gross income (AGI), the lower the credit.

The 2022 Child and Dependent Care Credit is nonrefundable.

Federal Taxes on State Rebates

There were no federal stimulus checks in 2022. But some states still handed out rebates and refunds to taxpayers. California, New Jersey, and Massachusetts will be handing out checks through the first quarter 2023.

But that money may not be totally free. Because even though the federal handouts don’t count as income on a state return, the Internal Revenue Service wants to see state handouts on a federal return. They may count it as income.

Standard Deduction Increased

You'll want to take the standard deduction if you’re not itemizing. Because of inflation, the standard deduction on Form 1040 increased. The new rates are:

• married filing jointly or qualifying widow(er)—$25,900 ($800 increase)
• head of household—$19,400 ($600 increase)
• single or married filing separately—$12,950 ($400 increase)

Talk to your tax professional and make sure taking the standard deduction is the best route. If you have a lot of medical bills or charitable deductions, itemizing may work out better for you.

Charitable Contribution Deduction Hampered

In 2021, there was a special charitable deduction for taxpayers who used the standard deduction. It was $300 for individuals and $600 for married couples. But Congress didn’t extend the temporary tax break that allowed this.

For 2022, if you want to deduct any charities, you must itemize instead of taking the standard deduction.

Clean Energy Tax Credits

The Inflation Reduction Act of 2022 enhanced tax credits for those who made energy-efficient upgrades. The energy-efficient home improvement credit applies to qualified properties through the end of 2022.

The credit is equal to 10 percent of the costs of specific expenses. Some of these expenses are insulation doors and exterior windows. There is a $500 combined tax credit for all years after 2005.

There is also a 30 percent tax credit for installing qualified solar electric, geothermal heat, and biomass fuel equipment. This credit goes through 2032.

Education Breaks Save Money

The American Opportunity Credit is available for individuals with a modified AGI of $80,000 or less. It is also for married couples filing jointly with an income of $160,000 or less.

This credit is available for up to $2,500 of college tuition and related expenses (not room and board) per tax year. And it covers all four years of college.

For additional education, you can take advantage of the Lifetime Learning Credit. It is 20 percent, up to $10,000, of qualified expenses.

Beware, though: you can’t use the Lifetime Learning Credit and the American Opportunity Credit for the same student in the same year. There are also income limits, so you might want to speak with a tax professional to see if you qualify.

There is another way to pay less for school. You can deduct up to $2,500 of interest paid each year if you have a student loan. There are some income requirements to take advantage of this deduction.

Filing Income Tax Return

The sooner you electronically file, the quicker you’ll receive your refund. But don’t be so fast to pull the trigger that you don’t take advantage of all the tax credits due you. You don’t want to leave money on the table.

If you need to, file an extension to do additional research. Remember, if you owe taxes, you'll need to pay them by April 18, despite filing an extension.

Ask your tax professional what’s the best course of action.

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.