You hopefully already know that limits on certain retirement accounts tend to rise each year to account for inflation — and 2022 will be no exception to that, as we recently reported.
But these are not the only limits that the IRS imposes or oversees that tend to increase annually. Limits on certain federal income tax credits also tend to rise each year to account for inflation.
The IRS recently announced that the following credits are among those for which limits will rise for the 2022 tax year — the one for which your tax return is due by April 2023.
Also known as the retirement savings contributions credit, this tax break is for folks who save money in certain types of retirement accounts — including 401(k) plans and individual retirement accounts (IRAs) — and who are otherwise eligible for the credit.
- Married filing jointly: $68,000 (up from $66,000 for 2021)
- Head of household: $51,000 (up from $49,500)
- All other tax-filing statuses: $34,000 (up from $33,000)
Credit limits: The maximum amount that the saver’s credit could be worth remains $2,000 for folks whose tax-filing status is married filing jointly and $1,000 for those with any other tax-filing status.
To learn more: Visit the saver’s credit webpage on the IRS website.
Earned income credit
This tax credit is for eligible workers. More specifically, it’s for folks with earned income, such as wages, as opposed to income from investments.
Unlike the saver’s credit, the earned income tax credit (EITC) is refundable. That basically means it not only reduces your tax bill, but it also might result in you receiving a tax refund or a receiving a bigger refund than otherwise.
Income limits: For 2022, you might be eligible for the earned income tax credit if your AGI is not more than:
- Married filing jointly: $22,610 to $59,187, depending on whether and how many of your children qualify for the credit (up from $21,920 to $57,414 for 2021)
- All other tax-filing statuses: $16,480 to $53,057, depending on whether and how many of your children qualify for the credit (up from $15,980 to $51,464)
Credit limits: For 2022, the maximum amount that this credit is worth ranges from $560 (if you have no qualifying children) to $6,935 (if you have three or more qualifying children). Those amounts have increased from $543 and $6,728, respectively, for 2021.
To learn more: Visit the EITC webpage on the IRS website.
This tax break is for qualified expenses associated with the legal adoption of an eligible child, such as adoption fees, court costs and attorney fees.
Income limits: For 2022, the full value of the adoption credit is available to eligible taxpayers with a modified AGI (found on your tax return) of up to $223,410 (up from $216,660 for 2021). The credit is not available at all to those earning $263,410 or more (up from $256,660). Eligible taxpayers with a modified AGI of more than $223,410 but less than $263,410 can take advantage of the adoption credit in part but not in full.
Credit limits: For 2022, the adoption credit is worth up to $14,890 (up from $14,440 for 2021).
To learn more: You can use the IRS’ Interactive Tax Assistant, which is a free online tool, to determine if you are eligible for the adoption credit.
Other tax credits
The above credits are among the few federal income tax credits that have limits that tend to change each year, but they are not the only tax credits that Uncle Sam offers.
It’s worth taking a moment to see if you might qualify for these or any other tax credits, as they would directly impact your tax bill.
As we explain in “7 Words Every Taxpayer Needs to Know,” a tax deduction can reduce your taxable income but not your tax bill. A tax credit, on the other hand, can reduce your tax bill — dollar for dollar.
For example, a $1,000 tax deduction would lower your taxable income by $1,000 — which may or may not lower the amount of money you owe Uncle Sam — while a $1,000 tax credit would take $1,000 off the amount you owe.
For help determining whether you’re eligible for a given tax credit, check out the IRS’ free Interactive Tax Assistant tool.
Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.