As we enter the new year, it’s important to understand the changes that may be coming to the tax system. In 2022, there are several tax changes that could impact your financial situation. Here’s what you need to know.
Tax Bracket Adjustments
One of the most significant changes for 2022 is the adjustment of tax brackets. The IRS regularly adjusts tax brackets for inflation, and the changes for 2022 mean that some taxpayers will be pushed into a higher tax bracket, even if their income hasn’t increased from the previous year. For example, the top tax rate for individuals earning over $523,600 will increase from 37% to 39.6%.
Child Tax Credit
Another significant change for 2022 is the expansion of the Child Tax Credit. The credit, which was increased for 2021 as part of pandemic relief efforts, will continue for 2022. The increase means that eligible families could receive up to $3,600 per child under age 6 and up to $3,000 per child between ages 6 and 17. However, the credit is subject to income limitations and phaseouts for higher earners.
Capital Gains Tax
Capital gains taxes will also see changes in 2022. The maximum long-term capital gains tax rate will increase from 20% to 25% for taxpayers earning over $400,000. Additionally, the holding period required for a gain to be considered long-term will increase from one year to two years.
State Income Tax Deductions
One of the most talked-about changes for 2022 is the potential reinstatement of state and local income tax (SALT) deductions. The previous tax law limited the deductions to $10,000 per year, leading to criticism that it disproportionately affected high-tax states such as California and New York. The reinstatement of the deductions would benefit taxpayers in these states, but it remains unclear if or when this change will take effect.
Tax Credits for Electric Vehicles
Finally, the 2022 tax changes include new tax credits for the purchase of electric vehicles. The credit amounts will vary based on the vehicle’s battery capacity, with some models being eligible for up to $7,500. However, the tax credit will phase out after a certain number of vehicles are sold by each manufacturer.
Conclusion: Staying Informed
As you can see, there are several changes coming to the tax system in 2022. It’s essential to stay informed and understand how these changes could impact your financial situation. If you have questions or concerns, it’s best to consult with a professional tax advisor to ensure that you are taking advantage of all available credits and deductions while complying with all applicable tax laws.
