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A federal and state tax reform will affect Arkansans

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Little Rock, Arkansas – New tax returns must be filed each year, and both federal and state tax laws will change, which may have an impact on Arkansans.

The standard deduction for single, head of household, and married couples filing jointly has increased:

• Single was raised to $12,950
• Head of household was raised to $19,400
• Married filing jointly was raised to $25,900

That represents an increase of $400, $600, and $800, respectively, with those changes.

The American Rescue Plan Act of 2021 was passed by Congress with the goal of putting more money in the pockets of citizens.

According to Charlott Jones, tax manager at HCJ CPAs and Advisors, there have been increases with a number of tax credits. In 2022, some of the increases were not continued.

One was the return to the previous level of $2,000 for the child tax credit.

“Say you had two children under age 6 and last year, you got $7,200, this year you’re going to get $4,000. So that’s a huge decrease,” she said.

17-year-olds are no longer qualified for the credit in addition to the reduction.

The credit for child and dependent care expenses, which previously allowed for a maximum payment of $4,000 for one dependant or $8,000 for two or more, will also alter. However, many will receive less money this year.

“That’s gone back down to our 2020 amounts which is a maximum of $1,050 for one dependent and $2,100 for two or more dependents,” Jones said.

All Arkansans will be impacted by a change in the state’s individual income tax rate.

“We have decreased here in Arkansas our top rate from 5.5% to 4.9% so that’s a good thing for anybody who files tax returns, from the lowest income filer to the highest income filer,” she said.

Arkansas increased the Section 179 depreciation deduction cap to $1,080,000, which has tax repercussions for persons who own businesses. It’s a $25,000 increase from before.

Additionally, a credit for inflation relief was added for 2022, and it can add up to $150 for single filers and $300 for joint filers.

According to Jones, the federal level may see higher tax payments or lesser refunds overall.

She mentioned a particular demographic that she believed would be particularly impacted: parents and those who have children.

“I think taxpayers with children are going to see the biggest changes because their credits were so generous in 2021 and they are not as generous in 2022,” Jones said.

 

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