Tax Day — set for Tuesday, April 18, 2023 — is fast approaching. And of course, for many Americans, this looming deadline can serve as a serious stressor. So with that in mind, we prepared a blog article earlier this year on how to prepare for your tax filing in advance and what information you’ll need to gather to file your taxes — each of which can help lower the anxieties that an impending tax-filing deadline can bring.
Now, to help ensure that you’re not caught off guard when filing time arrives, we’ll turn our attention to what’s new in 2023 (for tax year 2022) in the federal tax code. Read on to learn more about some of the most impactful changes most Americans can expect when it comes to what you need to know about filing taxes in 2023.
Noteworthy tax-code changes in 2023
Each year, the IRS adjusts the tax-bracket thresholds to account for inflation — and tax year 2022 included these standard annual changes to the household income amounts at which taxpayers’ income is subject to various federal tax rates. But when preparing their returns in 2023 (for tax year 2022), many taxpayers will also see a number of other tax-code modifications that affect their filings.
Before you begin your 2023 tax preparation (for tax year 2022), consider these key changes to the tax-filing rules that have been put in place for this tax season:
- A return to lower tax credits — In response to the COVID pandemic and the economic impacts it had on American taxpayers, the American Rescue Plan Act of 2021 (ARPA) offered some relief by raising the levels of a number of common tax credits that U.S. taxpayers can claim. But several of these ARPA credit-level increases expired at the end of 2021, returning the credits to tax year 2019 levels and boosting the likelihood that taxpayers will see smaller refunds (or higher tax bills) in 2023 than they did in 2022.
Among the most significant tax credits impacted by the changes:
– The Child Tax Credit (CTC), which was raised to $3,600 per dependent for most taxpayers in tax year 2021, returns to $2,000 per dependent for tax year 2022.
– The Earned Income Tax Credit (EITC), for which most eligible taxpayers without children received roughly $1,500 in tax year 2021, returns to $500 in tax year 2022.
– The maximum for the Child and Dependent Care Credit, which stood at $8,000 in tax year 2021, returns to $2,100 in tax year 2022.
- A change in charitable deductions — Another adjustment made in an attempt to offset the economic impacts of COVID was a $600 above-the-line tax deduction — a deduction subtracted from a taxpayer’s gross income before his or her taxable income amount is calculated. This was allowed for those taking standard deductions in tax year 2021. In tax year 2022, however, this deduction is no longer allowed for those same taxpayers.
- Expanded eligibility for the premium tax credit — Also referred to as the PTC, the premium tax credit is designed to help eligible U.S. households more easily afford the premiums required for health insurance plans purchased through the federal government’s Health Insurance Marketplace. Before the COVID pandemic set in, taxpayers whose household income was at more than 400% of the federal poverty line did not qualify for this tax credit. But for tax years 2021 and 2022, the American Rescue Plan Act of 2021 temporarily expanded eligibility for this tax credit, doing away with the aforementioned 400% rule. As a result, larger numbers of taxpayers are eligible for the premium tax credit when filing their returns in 2023.
- EV credit eligibility changes — The passage of the Inflation Reduction Act of 2022 (IRA) brought a number of impactful tax-related changes for consumers purchasing electric/clean vehicles. Among them, those who purchased a new electric vehicle after August 16, 2022 — when the IRA was enacted — no longer qualify for a clean vehicle tax credit unless the vehicle’s final assembly took place in North America. (To help consumers better understand which vehicle purchases may qualify for this credit, the U.S. Department of Energy put together this helpful resource.)
- A delayed reporting rules change — The IRS’s Form 1099-K (officially called the “Form 1099-K: Payment Card and Third Party Network Transactions”) is used to report payments for goods and services that are received via online platforms, apps and payment card processors such as Venmo and PayPal. As part of the American Rescue Plan Act of 2021, the reporting thresholds for payments from such third-party networks were lowered from a total of $20,000 to a much lower total of $600 — meaning that anyone who received business-related payments totaling $600 or more would need to report them to the IRS via a 1099-K.
But in late December 2022, the IRS announced a delay in the implementation of the rule, making calendar year 2022 a transition period for the new reporting threshold. As a result, for tax year 2022 (the returns filed in 2023), the former $20,000 threshold will still apply. But looking forward, taxpayers who receive payments for goods and services exceeding a total of more than $600 in 2023 would be well advised to save their receipts, as the new threshold will be implemented for next year’s tax filings.
For more details on these 2022 tax year changes from the IRS, visit irs.gov.
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