Q: It’s time to file my 2022 personal tax return. I live in Indiana. What changes should I be aware of when preparing federal and state returns?
— D.M., emailFederal tax return:
a) Stimulus Payments. We have been spoiled the last two years with the extra amounts received from a number of different stimulus payments made during the height of the pandemic in 2020 and 2021. There were no stimulus payments enacted in 2022. Taxpayers will not get an additional payment for 2022, meaning refunds in general will likely be lower.
b) Tax Credits. Another area that was pandemic expanded. Now certain credits will return to pre-COVID levels. Thus, the Child Tax Credit (CTC), the Earned Income Tax Credit (EITC) and the Child and Dependent Care Credit will revert to 2019 levels. The changes will be significant. For instance the maximum CTC per dependent, which was $3,600, goes back to $2,000 for the 2022 tax year. And the EITC for eligible taxpayers with no children was roughly $1,500 in 2021 and retreats to $500 for 2022. The Child and Dependent Care Credit will have a $2,100 maximum in 2022, which is far from the $8,000 maximum some taxpayers enjoyed in 2021. Some credits have, or will (in 2023) expand. Namely, the Premium Tax Credit (available to those enrolled in health insurance coverage through the Marketplace for at least a month in 2022) as well as tax credits related to “clean & green” vehicles. We’ll provide more information on both credits in the weeks ahead.
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c) Loss of the Above-the-line Charitable Deductions. During COVID, taxpayers were able to take up to a $600 charitable deduction for cash donations. For tax year 2022, taxpayers who don’t itemize and take the standard deduction (almost 90% of individuals) will not be able to deduct their charitable contributions.
d) Tax Rates and Standard Deductions. Slightly better news here, an increase in the standard deduction ($400 if single to $800 if married) for all filers and a slight widening of the tax brackets.
a) Student loan forgiveness. Normally, the IRS stance on canceled or forgiven debt is to include the amount in taxable income. However, federal legislation created a window from 2021 to 2025 to exclude forgiven student loans from income. However, Indiana says, “Not so fast, my friends!” The instructions indicate forgiven student loans, in general, be added to Indiana income … and then goes on to list eight exceptions to its add-back stance. So read the instructions carefully!
b) 2022 Additional Automatic Taxpayer Refund (ATR). If you or your spouse (if married filing jointly) were not eligible for the combined $325 ATR issued during 2022, you and your spouse may be eligible for a $200 ATR. Check out the four criteria laid out in the instructions.
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c) Adoption. Two new, very positive, Indiana rules. Indiana increases the amount of the Adoption Credit to 20% of the federal adoption credit or $2,500 per eligible child, whichever is less AND a new $3,000 exemption is available for a qualifying adopted child.
Ken & Klee’s Tax Notebook — The beginning of a new year is a good time to use the IRS Tax Withholding Estimator. This online tool helps taxpayers determine the correct amount to have withheld from their paycheck. If the past year resulted in life changes like getting married or divorced, welcoming a child or taking on a second job, a review may be in order. Other situations include considering estimated tax payments due to non-wage income from unemployment, self-employment earnings, annuity income or even digital assets.
Rick Klee served as the tax director at the University of Notre Dame from 1998 through August 2019. A retired CPA, Klee is a graduate of Notre Dame. You can contact him at rklee@nd.edu.
Ken Milani is a professor of accountancy at Notre Dame, where he served as the faculty coordinator of the Notre Dame Tax Assistance Program. Contact him at milani.1@nd.edu.
E-mail questions to either.
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