AMERICAN RESCUE PLAN

On March 11, 2021 the American Rescue Plan was signed into law to provide financial relief for millions of Americans. The plan included a third round of stimulus relief and expanded tax benefits that families could claim on their 2021 taxes (returns filed in 2022). These tax benefits will either revert to what they were before the American Rescue Plan or they expired in 2022.

Here are the tax benefits that are changing or reverting to previous tax rules for your 2022 taxes:

  • Child Tax Credit: For tax year 2022, the Child Tax Credit reverts to up to $2,000. Child tax credit that was refundable up to $ 1,400 is no longer fully refundable in 2022 and onwards.
  • Child and Dependent Care Credit: For tax year 2022, the Child and Dependent Care Credit reverts to pre-2021 provision – up to 35% of $3,000 ($1,050) of childcare expenses for a dependent child under 13, an incapacitated spouse or parent, or another dependent so that you can work or look for work. In case of two or more dependents, the credit will be 35%of $ 6,000 in expense ($2,100). The credit starts phasing out for families with MAGI of $2,00,000 for single filers and $4,00,000 joint filers.
  • Earned Income Tax Credit: The age requirements have been reinstated. To be eligible for the credit, taxpayers without children must be between the ages of 25 and 65. Income from the previous year cannot be used to help you qualify for the Earned Income Tax Credit. Every year, the amount of the Earned Income Tax Credit is adjusted for inflation and will be up to $6,935 with three or more children in tax year 2022 ($6,728 in tax year 2021).
  • Recovery Rebate Credit: Recovery Rebate Credit will not be available on your 2022 taxes.
  • Sick and Family Leave Credits for Self-Employed: Refundable tax credits for sick leave and family leave credit expires after tax year 2021.
  • Charitable Contribution Deduction: For tax year 2022, you can no longer claim the deduction for cash donations up to $300 ($600 married filing jointly) if you claim the standard deduction.  If you itemize your deductions, you will be able to include charitable deductions under itemized deductions.
Additionally, Under the American Rescue Plan, beginning with your 2022 taxes (returns filed in 2023), if you are self-employed and receive payments for your goods and services processed by third party providers like Venmo and PayPal, you will now receive Form 1099-K from the third party providers if amounts processed are more than $600, regardless of the total number of transactions. Prior to tax year 2022, third party providers issued Form 1099-K to self-employed individuals with 200 transactions and $20,000 processed.

Be sure to consult with your tax professional to analyze your specific tax situation. At Taxperts, we can assess your small business structure and suggest ways to increase your savings. Check out our website, Facebook page, or LinkedIn page to learn more.

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