EV credits, shrinking refunds and the end of pandemic tax relief – Twin Cities
Robert Channick | (TNS) Chicago Tribune
With less than one month to go before the April 18 deadline, the majority of the nation’s 168 million tax filers are once again scrambling to download software, organize receipts and call their accountants for last-minute help.
Procrastinators may find what early filers already know: Tax year 2022 is not producing as many happy returns as in previous years due to a number of changes, including the expiration of some pandemic-era tax breaks.
“People will be getting smaller refunds on average because of that,” said Dan Rahill, a longtime Chicago tax partner and past chairman of the Illinois CPA Society, who now serves as a wealth strategist at Wintrust Wealth Management.
From a reduced child tax credit to the end of a charitable tax break that allowed for an above-the-line deduction last year, the changes are most likely to erode refunds that have become the norm during the pandemic.
For the 63 million people who had already filed their tax returns as of March 10, the average refund is down 11% to $2,972, according to the latest IRS data.
That refund decline could get even steeper as the rest of the returns come in.
“The people that want to get it done right away are the ones that expect that refund, and they want to get that money back,” Rahill said. “If they don’t expect a big refund, there’s no urgency to file.”
On the upside, expanded EV tax credits and other clean energy initiatives from the Inflation Reduction Act, signed in August by President Joe Biden, could help boost refunds for some tax filers this year. And millions of Illinois filers are getting a small measure of relief from the IRS for those one-off state “tax rebate” checks mailed in September.
Here are some key changes to look for in the 2022 return.
There will be a little more time to file this year because the deadline has been pushed back from April 15, which falls on a Saturday, to Tuesday, April 18. The extra 24-hour reprieve is thanks to Washington, D.C., celebrating its annual Emancipation Day on April 17, which affects tax deadlines in the same way as federal holidays.
Child Tax Credit
In 2021, Congress boosted the Child Tax Credit for one year through the American Rescue Plan, increasing the maximum credit from $2,000 up to $3,600 for children under 6, and $3,000 for children 6 through 17. The 2022 tax credit reverts to $2,000 per child, although Biden has proposed expanding it back to the $3,600 maximum for the next fiscal year.
Child and Dependent Care Expenses
An American Rescue Plan increase on the maximum amount of care expenses you’re allowed to claim for a child or dependent also expired in 2022, dropping the maximum credit from $8,000 to $3,000 per person.
The 2017 Tax Cuts and Jobs Act under then-President Donald Trump nearly doubled the standard deduction, eliminating the incentive for 90% of filers to itemize and claim charitable expenses as deductions. During the first two years of the pandemic, Congress gave charities a boost by allowing donors to claim an above-the-line deduction of up to $300 — even if they didn’t itemize. The added charitable deduction has expired as well for the 2022 tax year.
Clean Vehicle Credit
The Inflation Reduction Act expanded a tax credit of up to $7,500 for new electric vehicles and added a credit of up to $4,000 for used EVs purchased in 2023. But the law also added price caps, income limits and other restrictions that may reduce or eliminate the tax credit.
To qualify for the expanded $7,500 tax credit, new electric trucks, SUVs and vans must have a retail price of $80,000 or less, while other EVs cannot exceed $55,000. Individual taxpayers who make more than $150,000 a year are not eligible for the credit. The income cutoff goes up to $300,000 for buyers filing joint returns.
Used EVs must be at least two years old and cost $25,000 or less to qualify for the $4,000 tax credit. Income limits are $75,000 for individuals and up to $150,000 for joint filers.
A few other wrinkles to consider. New EVs purchased after Aug. 17 have to be assembled in North America to get the $7,500 tax credit for 2022. A cumulative 200,000-vehicle manufacturer’s sales cap has been eliminated in 2023, but Chevy, GMC and Tesla EVs sold last year do not qualify for the credit.
Requirements on the sourcing of critical mineral and battery components are also set to kick in during 2023, but are not in place for the 2022 tax year.
Residential Clean Energy Property Credit
A 30% tax credit on the cost of residential solar, wind, geothermal heat pump and battery storage technology was extended by the Inflation Reduction Act through 2032, with no overall dollar limit on expenditures. A phased-down rate will be in effect for 2033 and 2034.
Tax Filing Extensions
With refunds projected to decline this year, Rahill expects more taxpayers to drag their feet all the way to April 18, and perhaps beyond.
The number of taxpayers filing for extensions, he said, is also likely to tick up this year.
“A big percentage of people are going to be affected by these expiring COVID tax incentives,” Rahill said. “A lot of them are not going to get that big refund anymore. So why hustle to their local tax accountant to get their taxes filed?”
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