Reasons Why You May Want to Adjust Your 2022 Tax Withholding
Even if you received a 2021 IRS refund, you may have to adjust your withholding this year to avoid owing tax next spring. Taxpayers who do not pay enough tax throughout the year may also be charged IRS penalties and interest fees. Checking your withholding is especially important this year due to several federal tax law changes, including:
DECREASED CHILD TAX CREDIT (CTC):
With the expiration of the American Rescue Plan Act, CTC amounts will be lower in 2022 than they were in 2021. There will also be no CTC advance payments during the year. For a household with three qualifying children, the credit amount could decrease by as much as $4,800 from 2021 to 2022.
DECREASED EARNED INCOME CREDIT WITH HIGHER INCOME LIMITS:
The 2022 income limits for the Earned Income Tax Credit (EITC) are significantly lower than the 2021 limits, especially if you don’t have qualifying children. In addition, maximum EITC amounts have been reduced this year. You can use the IRS online EITC Assistant (link below) to find out if you may qualify for this credit in 2022.
PREMIUM TAX CREDIT (PTC) RULE CHANGES:
To qualify for the PTC, you must purchase a qualifying health insurance plan through the insurance marketplace. Some special 2021 rules for PTC have expired, which may affect your credit amount.
The IRS Withholding Estimator (link below) can help you determine whether your withholding is on track for 2022. If not, you can submit an updated Form W-4 to your employer to request an adjustment.
IRS EITC Eligibility Assistant: https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/use-the-eitc-assistant
IRS Withholding Estimator Tool: https://www.irs.gov/individuals/tax-withholding-estimator