VITA Offseason Prep: 2022 Tax Law Updates - December 8, 2022 - Prosperity Now
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
VITA Offseason Prep: 2022 Tax
Law Updates
December 8, 2022
Housekeeping • This webinar will be recorded and made available within a week. • All webinar attendees are muted to ensure sound quality • Ask a question or share your thoughts anytime by typing into the text box of your GoToWebinar Control Panel • If you experience any technical issues, email gotomeeting@prosperitynow.org
Getting the Most Out of Today’s Webinar § Join from a quiet space § Grab a coffee or snack and settle in § Engage! Send us your questions and comments as you listen § Reflect on ways to apply what you learn today to your own work
Welcome
Justin Chu
Program Manager, Ecosystems Change
Prosperity Now
Chat Icebreaker
How many years
of VITA
experience
do you have?
Presenters
Brad Martin
United Way of Southwest Alabama
Mobile, Alabama
bmartin@uwswa.org
Marshall J. Hunt, CPA
Accounting Aid Society
Detroit, Michigan
mjhunt@accountingaidsociety.org
Note: the views expressed by the presenters are
their own and do not necessarily reflect those of
the organizations they represent.
Today’s Agenda Framing the Conversation Tax Law Updates Conversation • Tax Law Changes Introduction • Hot Topics • At Your Site • Q&A Session Final Thoughts Next Steps & Close
VITA Offseason Prep: 2022 Tax Law Updates An overview of tax law changes likely to affect taxpayers served by VITA
Tax Form Changes – Form 1040 Changes to Form 1040 Note: At the time this presentation was developed, only the draft version of Form 1040 was available for review; changes could have been made before the official release of the 2022 Form 1040. Virtual Currency now referred to as Digital Assets Form 1040 now asks: At any time during 2022, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)? (See instructions.)
Tax Form Changes – Form 1040 - Continued Form 1040 Line 1 has been broken down into lines 1a through 1z to decrease the amount of write-ins: §1a Amounts from Form(s) W-2, box 1 (see instructions) §1b Household employee wages not reported on Form(s) W-2 §1c Tip income not reported on line 1a §1d Medicaid waiver payments not reported on Form(s) W-2 (see instructions) §1e Taxable dependent care benefits from Form 2441, line 26 §1f Employer-provided adoption benefits from Form 8839, line 29 §1g Wages from Form 8919, line 6 §1h Other earned income (see instructions) §1i Nontaxable combat pay election. This entry was moved from line 27b to line 1i because nontaxable combat pay can be used to figure earned income for the EIC and ACTC §1z Add lines 1a through 1h Note: although these items are new, tax software has ways to enter most of these items. The difference in most cases is how they will be presented in the final return.
Tax Form Changes – Form 1040 - Continued Form 1040 Line 6c is an added new line with a checkbox for taxpayers who use the lump-sum election method when figuring taxable Social Security benefits and eliminates the need for the write-in “LSE.”
Tax Form Changes – Schedules 1 and 2 Form 1040, Schedule 1 Line 8 has been expanded to include the following entries: §Scholarships and fellowship grants not reported on Form W-2 §Nontaxable amount of Medicaid waiver payments included on Form 1040, line 1a or 1d §Pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457plan §Certain wages from penal institutions Form 1040, Schedule 2 Added a checkbox for taxpayers who are not required to file Form 5329.
Tax Form Changes – Form 1099-K §Reporting requirements for this form have been reduced. In prior years, Form 1099-K was issued when amounts received from a third party payment service entity or network exceeded $20,000, and there were more than 200 such transactions involved. Beginning in 2022, the number of transactions is not a factor, and the dollar amount is $600. So you can expect to see many more of these forms, particularly if you see many Schedule C filers. §See the Scope of Service chart in the front of Publication 4012 for explanations of when Form 1099-K is or is not in scope for the VITA and TCE programs. §Note: Frequently Asked Questions pages from services such as Venmo and Cash App suggest you will not receive a Form 1099-K for personal transactions and personal accounts. However, you may encounter situations in which either payers or recipients have made mistakes that cause them to receive the form in error. We have not received guidance on how to handle these situations, and it could result in scope issues.
Tax Form Changes – Form W-4P
Form W-4P is split into two forms.
• Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments,
which is to be used only for periodic pension and annuity payments that are
treated similarly to wages
• New Form W-4R, Withholding Certificate for Nonperiodic Payments and
Eligible Rollover Distributions, which is to be used only for nonperiodic
payments and eligible rollover distributions
Note: These are forms taxpayers may use to adjust or request tax withholding
from retirement distributions; they are not tax forms that would be entered into tax
software or used to compute the tax return.Tax Form Changes – On the Horizon On the Horizon for 2023 New Form 1099-DA, Digital Asset Proceeds from Broker Transactions, will be used to report proceeds of digital asset transactions. The form will be issued by broker exchanges to the IRS and the seller.
Other Changes Due Date of Return Taxpayers will have until Tuesday, April 18, 2023 to file their 2022 return because the Emancipation Day holiday in Washington, D.C. falls on Sunday, April 16, 2023 and will be celebrated on Monday, April 17, 2023. Expiring provisions: §Recovery Rebate Credit. §Increased amount of the child and dependent care credit (CDCC) and eligible expenses, modified phase- out of the credit for higher earners, and refundability. As before 2021, the credit is non-refundable, work- related expense dollar limits are $3,000 for one qualifying person and $6,000 for two or more qualifying persons, and credit percentage is 20% - 35% of expenses. §Private mortgage insurance premiums (PMI) deducted as home mortgage interest (through 2021). §Temporary deduction for charitable contributions for taxpayers who do not itemize (through 2021). §A taxpayer who received, or was approved to receive, unemployment for any week in 2021 was considered to be an applicable taxpayer and to have household income at 133 percent of the FPL if his or her household income was at or above 133 percent of the FPL (through 2021). §The provision for qualified sick and family leave credits expired on 09/30/21.
Temporary Provisions Still in Effect §Exclusion from gross income is available for student loan forgiveness after 2020 and before 2026 for most forgiven student loans. Note: the lender should not issue Form 1099-C. §The temporary 100% deduction for food or beverages from restaurants. Beginning January 1, 2021, through December 31, 2022. §An employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment is excluded from the employee’s income through 2025. The $5,250 cap applies to both the student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, books) provided by the employer. § Exclusion from gross income of canceled qualified principal residence indebtedness (through 2025). § For most years, only taxpayers and families whose household income for the year is between 100 percent and 400 percent of the FPL for their family size may be eligible for the PTC. For 2021 through 2025, however, taxpayers with household income of 100 percent or more of the FPL may be eligible for a PTC. See the Premium Tax Credit lesson and Instructions for Form 8962, Premium Tax Credit, for details. § The nonbusiness energy property credit is extended for 2022 and the name has been changed to energy efficient home improvement credit. Still subject to the combined credit limit of $500 ($200 windows) for all tax years after 2005.
Individual Taxpayer Identification Numbers (ITINs) §ITINs not used in the last three consecutive tax years: Any ITIN that is not used on a federal tax return for at least three consecutive tax years will expire on December 31 of the third consecutive tax year of nonuse. ITINs with middle digits (the fourth and fifth positions) “70,” “71,” “72,” “73,” “74,” “75,” “76,” “77,” “78,” “79,” “80,” “81,” “82,” “83,” “84,” “85,” “86,” “87” or “88” have expired. In addition, ITINS with middle digits “90,” “91,” “92,” “94,” “95,” “96,” “97,” “98,” or “99” if assigned before 2013, have expired. §Note: some notices for ITINs issued beginning in 2013 indicated a 5 Year expiration. This rule was rescinded and does not apply. §The IRS now requires that either an original return, or if the need for a renewal becomes known after the return is filed, a copy of the return, accompany a Form W-7 filed for a renewal. §Per IRS Form 8812 Instructions at Page 1: “If you apply for an ITIN on or before the due date of your return (including extensions) and the IRS issues you an ITIN as a result of the application, the IRS will consider your ITIN as issued on or before the due date of your return.” §Per IRS Pub. 1915 at Page 6: If you are filing an extension for an ITIN applicant, do not file Form W-7 with the extension. “Write “ITIN TO BE REQUESTED” wherever the ITIN or SSN is requested”. §Note: While there is a moratorium on Acceptance Agent applications until Summer 2023, ITIN applications on Form W-7 are still being processed.
Extended and Expired Legislation §The following were one-year provisions for tax year 2020 and may have 2022 application: §Deferred payment of the employer’s share of Social Security tax for self-employed individuals. The last payment is due January 3, 2023. § Coronavirus-related withdrawals up to $100,000 from IRAs or workplace retirement plans taken in 2020 could be spread over three tax years (2020, 2021, 2022) or recontributed to a qualified plan within three years of the day after the date of distribution.
Changes to the Child Tax Credit
2021 saw a one-year expansion of the Child Tax Credit and some special
provisions that have not yet been made permanent. The Child Tax Credit rules for
2022 are similar, but not identical, to the rules for 2020.
• The increased age allowance has expired. A child must not have attained age
17 by the end of 2022 to be a qualifying child.
• The initial amount of the CTC is $2,000 including a maximum additional child
tax credit (ACTC) of $1,500 for each qualifying child. This refundable maximum
is now indexed for inflation. (Prior to 2021, the maximum amount of ACTC was
$1,400 per child.)
• To claim the Additional Child Tax Credit, taxpayers must have earned income of
at least $2,500, unless they have three or more children.
• Bona fide residents of Puerto Rico are no longer required to have three or
more qualifying children to be eligible to claim the ACTC.Earned Income Credit Changes
Expired Provisions
The following 2021 changes to the Earned Income Credit (EIC) have expired:
• Higher income limits and increased credit amounts for taxpayers with no
children
• For childless workers, elimination of upper age limit; minimum age of 19;
minimum age of 18 for qualified homeless youth and qualified former foster
youth
• Ability to figure credit based on 2019 income (which was available for tax years
2020 and 2021)Earned Income Credit Changes – Continued
Permanent Changes to the EIC
The following 2021 changes to the EIC were made permanent and are therefore
still in effect:
• Individuals and couples who have Social Security numbers can claim the
credit, even if their children don’t have SSNs. In this instance, they would get
the smaller credit available to taxpayers without qualifying children. In the past,
these filers didn’t qualify for the credit.
• More taxpayers who also have investment income can get the credit. Starting
in 2021, the limit on investment income is increased to $10,000. After 2021, the
$10,000 limit is indexed for inflation ($10,300 for 2022).
• Special rule for separated spouses. Taxpayers can claim the EIC if they are
married, not filing a joint return, had a qualifying child who lived with them for
more than half of the tax year and either:
§ lived apart from their spouse for the last 6 months of the year or
§ are legally separated according to state law under a written separation agreement or a
decree of separate maintenance and didn’t live in the same household as their spouse
at the end of the year.Inflation Adjustments for 2022 - Background §Most adjustments are found in Revenue Procedure 2021-45, dated November 10, 2021 §Under the law, the IRS uses the average year-over-year gain from 12 monthly readings of chained Consumers Price Index starting in August of the prior year to calculate the annual index gain. § Standard Mileage Allowance: Found in Notice 2022-03, dated December 17, 2021 and Announcement 2022-13, dated June 9, 2022. §The standard mileage rate for business use is based on an annual study conducted by an independent contractor of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs. §The rate for charitable service is set at 14 cents per mile by statute. §Per IR-2022-206, dated November 29, 2022, for individuals, the interest rate for overpayments and underpayments for the quarter beginning January 1, 2023 will be 7%, up from 6%. Interest rates for individuals are determined on a quarterly basis using the federal short-term rate plus 3 percentage points.
Inflation Adjustments
Standard Deduction 2022 2021
§ Single/Married Filing Separately $12,950 $12,550
§ Married Filing Joint/Qualifying Surviving Spouse $25,900 $25,100
§ Head of Household $19,400 $18,800
Additional Standard Deduction (65 and older or blind)
§Single/Head of Household $1,750 $1,700
§Married or Qualified Surviving Spouse $1,400 $1,350
Standard Deduction for a dependent: cannot exceed
the greater of (1) $1,150 or
(2) the sum of $400 and the individual’s earned income
(increased from $1,100/$350).
Gross income limitation for determining
Qualifying Relative Dependency $4,400 $4,300Inflation Adjustments - Continued Earned Income Credit AGI Limits – 2022 Qualifying Children Claimed Single, HOH, QSS* MFJ Zero $16,480 $22,610 One $43,492 $49,622 Two $49,399 $55,529 Three $53,057 $59,187 *and MFS qualifying for the limited exception Maximum Credit Amounts - 2022 No Qualifying Children $ 560 One Qualifying Child $3,733 Two Qualifying Children $6,164 Three Qualifying Children $6,935 Limit on Investment Income: $10,300
Inflation Adjustments - Continued Standard Mileage Rate From 1/1/2022 through 6/30/2022, the following rates are in effect: 58.5 cents per mile for business miles driven 18 cents per mile driven for medical or moving purposes 14 cents per mile driven in service of charitable organizations From 7/1/2022 through 12/31/2022, the following rates are in effect: 62.5 cents per mile for business miles driven 22 cents per mile driven for medical or moving purposes 14 cents per mile driven in service of charitable organizations Basis reduction amount remains at 26 cents per mile for 2022.
Inflation Adjustments - Continued §Retirement Savings Contribution Credit: To claim this credit, the taxpayer’s modified adjusted gross income (MAGI) must not be more than $34,000 for Single, Married Filing Separately, or Qualifying Surviving Spouse (increase of $1,000). MAGI must not be more than $51,000 (increase of $1,500) for Head of Household, and $68,000 (increase of $2,000) for Married Filing Jointly. §Kiddie Tax: To be subject to the kiddie tax, the individual must have unearned income of at least $2,300 in 2022. Increased from $2,200. §Certain Expenses of Elementary and Secondary School Teachers: The amount of the deduction allowed that consists of expenses paid or incurred by an eligible educator for use in the classroom is $300 ($50 increase). Qualified expenses include amounts paid or incurred after March 12, 2021, for personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of coronavirus. §For failure to file a return within 60 days of the due date the failure to file penalty shall not be less than the lesser of $450 or 100 percent of the amount required to be shown as tax on the return. Increased from $435.
Inflation Adjustments - Continued Education Benefits: MAGI phase-out limits increased for the American Opportunity Credit, Lifetime Learning Credit, and Student Loan Interest Deduction. Eligible Long-Term Care Premium Limits For 2022, the maximum amount of qualified long-term care premiums includible as medical expenses has changed for one age bracket. Qualified long-term care premiums up to the amounts shown below can be included as medical expenses on Schedule A (Form 1040), Itemized Deductions, or in calculating the self-employed health insurance deduction. • Age 40 or under: $450 • Age 41 to 50: $850 • Age 51 to 60: $1,690 • Age 61 to 70: $4,510 (decrease from $4,520) • Age 71 and over: $5,640 The limit on premiums is for each person.
Inflation Adjustments - Continued
2022 Repayment Caps for Advance Premium Tax Credit
Income Taxpayers Filing as Single Taxpayers Using Other Statuses
(as % of federal poverty line)
2022 2021 2022 2021
Under 200% $325 $325 $650 $650
200%-299% $825 $800 $1,650 $1,600
300%-399% $1,400 $1,350 $2,800 $2,700
400% and above No cap (full repayment) No cap (full repayment)
Health Savings Account (HSA) Deduction
For 2022, the annual contribution limits on deductions for HSAs for individuals with self-only
coverage is $3,650 (increase of $50) and $7,300 for family coverage (increase of $100). There
is an additional contribution amount of $1,000 for taxpayers who are age 55 or olderPoll Question
Which tax law
change will have
the biggest impact
on your work?Discussion
What questions do you
have?
Share them in the
Questions box!Presenters Brad Martin United Way of Southwest Alabama Mobile, Alabama bmartin@uwswa.org Marshall J. Hunt, CPA Accounting Aid Society Detroit, Michigan mjhunt@accountingaidsociety.org Note: the views expressed by the presenters are their own and do not necessarily reflect those of the organizations they represent.
Stay in Touch!
§ Join the TaxRoundtable listserv:
https://taxroundtable.groups.io/
§Join the Taxpayer Opportunity Network to receive the
latest
updates from the field
§Email us with any questions, future learning suggestions, and
other feedback at
taxpayeropportunity@prosperitynow.org
To join or learn more, go to:
prosperitynow.org/get-involved/taxpayer-opportunity-networkThank You! Please complete our surveys!
You can also read
