New tax laws will significantly affect the 2022 tax-filing season, which may leave Americans with a larger tax bill, smaller tax returns, and new requirements reporting third-party income.
One of the most significant changes is that more US taxpayers will have to use the 1099-K form, which will report income from third-party networks like PayPal or Venmo. The Internal Revenue Service says the form will apply to anyone who made business transactions, such as part-time work, side jobs, or selling goods.
The previous requirements to report income using the 1099-K were for only those meeting a threshold of more than 200 transactions worth an aggregate of $20,000. The threshold is now $600, with any number of transactions requiring the form.
Certain tax credits have been reduced, like the child and dependent tax credit, which, although it received a monetary boost through the American Rescue Plan 2021, will no longer be available.
In 2021, the child tax credit jumped to $8,000 for qualifying dependents. However, the 2022 tax season has returned to the original cap of $3,000 for one and $6,000 for two or more qualifying dependents.
Those who claim the child tax credit will not receive funds before mid-February, said the IRS, due to a new protocol where filings will not be given by a “certain date” because it will require an “additional review.”
It will also be challenging to claim charitable donation deductions now that the tax break for standard deductions was not extended for the 2022 season, with more stringent limits on the total amount taxpayers can report.
Congress had made standard deductions easier to file in 2021 by allowing single donors to claim deductions up to $300 for cash donations or $600 for married couples, regardless of an itemized list.
However, now taxpayers will only benefit from itemized deductions. In 2019, almost 90% of taxpayers used the standard deduction, said the IRS in their “Tax Stats At A Glance”.