This year’s tax season marks a return to the “status quo,” as many of the provisions enacted during the COVID-19 pandemic to help taxpayers have now expired. For many, this will mean smaller tax refunds, as several deductions and credits have either been reduced or have disappeared entirely.
What’s Changed for the Current Tax Season?
There are three major changes that taxpayers need to be aware of.
End of the Expanded Child Tax Credit
In 2021, the Child Tax Credit increased from $2,000 per child to $3,000 per child for children ages 6 to 17, and $3,600 per child for children under 6. The expansion also raised the age limit from 16 to 17. However, for tax year 2022, those increases are now gone, and the age limit has returned to 16.
End of the Expanded Child and Dependent Care Credit
The Child and Dependent Care Credit is another tax incentive that has returned to 2019 levels. The maximum amount taxpayers can claim for child or dependent care for 2022 drops back to $2,100, down from $8,000 in 2021.
Elimination of the Charitable Contribution Deduction for Non-Itemizers
During the pandemic, two special tax rules were enacted that allowed taxpayers to deduct charitable contributions even if they didn’t itemize their taxes. Taxpayers could also claim deductions of sums up to 100% of their adjusted gross income.
Both of those provisions have expired and were not renewed by Congress. Now, you can only deduct charitable contributions if you itemize your taxes, and can only deduct up to 60% of your adjusted gross income.
What This Means for You
“Loss of these benefits for the 2022 tax year will be financially stressful for some taxpayers,” Bronnenkant said.
This is especially true if you are relying on a tax refund to pay bills or pay off debts.
“The average tax refund is expected to decline for the 2022 tax year,” Bronnenkant said.
The end of these provisions could particularly affect “many parents who have young children and significant dependent care expenses, who previously benefited from the expanded Child Tax Credit and expanded Dependent [Care Credit],” Bronnenkant said.
He suspects that there will be some growing pains for taxpayers, who will have to acclimate to a return to the pre-pandemic tax era.
“Taxpayers will have to adjust to the new normal,” he said, “and recognize that tax incentives available earlier in the pandemic are no longer in existence.”
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