2020 to Now: How Taxes Have Changed Since the Start of the COVID-19 Pandemic
The U.S. government pushed through a series of programs and fiscal initiatives in 2020 and 2021 to help Americans deal with the financial stress of the coronavirus pandemic. As part of the process, certain tax laws were changed as well.
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Unfortunately, most of these COVID-era tax benefits vanished for tax year 2022. This may come as a surprise for those who claimed these deductions and credits over the past few years, leading to potentially higher-than-expected tax bills.
If you find yourself among this group of taxpayers, you should take a close look at how taxes have changed — both positively and negatively — as you prepare to file your 2022 return. Here are the most important considerations.
Obamacare Premium Tax Credit Extension
In 2021’s American Rescue Plan, a provision was introduced to broaden the scope of premium tax credits for those signing up for “Obamacare” through federal or state marketplaces. Originally, the extension of these broadened credits was set to expire at the end of 2022.
However, thanks to 2022’s Inflation Reduction Act, those Affordable Care Act premium tax credits were extended through 2025.
Lingering Effects of the Tax Cuts and Jobs Act of 2017
The Tax Cuts and Jobs Act of 2017 went into effect before the coronavirus, but its provisions lasted throughout the crisis and remain intact to this day, although they are slated to sunset in 2025. The most important provisions for those filing their tax year 2022 returns include the following:
- Enhanced standard deductions: The Tax Cuts and Jobs Act nearly doubled the size of standard deductions, from $6,500 to $12,000 for individual filers and from $13,000 to $24,000 for joint filers. As of tax year 2022, those standard deduction levels have risen to $12,950 and $25,900, respectively.
- Changes to personal and corporate tax rates: The TCJA significantly altered the structure of personal tax brackets. Specifically, brackets went from the old 10%, 15%, 25%, 28%, 33%, 35% and 39.6% rates to 10%, 12%, 22%, 24%, 32%, 35% and 37%. The income range for most brackets was also raised. On the corporate front, the TCJA reduced the top tax rate from 35% to 21%.
- Qualified business income deduction: The TCJA introduced a significant tax break for businesses in the form of the qualified business income deduction. So-called “pass-through” entities like sole proprietorships, partnerships and S-corporations were now entitled to deduct 20% of their qualified business income.
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Temporary Changes That Have Been Phased Out
As the fiscal response to the coronavirus pandemic was significant, some taxpayers may have adapted to outsized credits and benefits over the past few years. That’s why it’s essential to take note of the temporary changes to tax law since 2019 that have since been phased out.
Exemption of Some Unemployment Benefits From Taxation
The American Rescue Plan of 2021 provided additional benefits to the unemployed through the shielding of some benefits from income tax. Specifically, the first $10,200 of unemployment benefits was deemed non-taxable for those with incomes of less than $150,000, with that exempt amount doubling to $20,400 for those filing jointly.
However, that exemption was quite short-lived. Even though the effects of the pandemic carried on into 2021, this tax-saving benefit only applied to income earned in tax year 2020.
Child Tax Credit
Those with children received significant legislative benefits during the heart of the pandemic. Specifically, 2021’s American Rescue Plan enlarged the Child Tax Credit significantly.
However, that expansion also ended in 2021, with no spillover benefits for tax year 2022. This means that the Child Tax Credit has reverted to its original amount of $2,000 per child age 16 or younger, with a phaseout for higher-income taxpayers.
EITC
The Earned Income Tax Credit is designed to help low- and moderate-income American workers earn a tax break. Pandemic-era legislation both broadened qualification for the EITC and increased the amounts that were paid out. While some have called for a permanent enhancement to the EITC, the provisions that changed 2021 do not apply for tax year 2022.
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