Tax Season: Be Aware of These New Changes

It’s tax season, and most taxpayers have until April 18, 2023, to file their 2022 federal income tax return. While there’s time to gather documents and submit your return, reviewing tax changes now can help you prepare for a smaller refund or bigger tax bill this spring. Some of the tax breaks available for the 2022 filing season have been reduced or no longer apply this year.

Here are three changes that might affect the size of your return.

1. Charitable Contributions

Last year, filers weren’t required to itemize their deductions claiming charitable contributions¹ to reduce their taxable income. Taxpayers could claim a standard deduction and still get the tax break as long as eligible donations didn’t exceed $600. This COVID-era tax break is no longer available. You’ll need to itemize deductions if you want to help reduce your taxable income.

2. Business Transactions

You probably accept third-party payments like PayPal if you have a small business or side jobs. In previous tax years, only individuals who completed 200 transactions and $20,000 in sales receive IRS Form 1099-K, Payment Card and Third Party Network Transactions¹. But this tax season, you’ll receive the form and need to file it with your return if you sold more than $600 in goods and services last year.

UPDATE: On December 28, 2022, the IRS announced it would delay this change by one tax season. They encourage taxpayers to treat 2023 as a transition year ¹ to prepare for the impact this provision will have on finances. Taxpayers must still report earnings, as required under federal tax code.

3. Tax Credits

While the Earned Income Tax Credit (EITC) has increased for certain qualifying taxpayers, some child tax credits are reduced. For instance, the maximum EITC is $6,935 for qualifying taxpayers who have three or more qualifying children,¹ an increase of $208 from the tax year 2021. However, eligible taxpayers with no children can only receive $500, significantly less than the $1,500 maximum in the tax year 2021.

Other credits, like the Child Tax Credit (CTC) and the Child and Dependent Care Credit (CDCC),¹ are significantly reduced. Filers eligible for a CTC should expect a maximum of $2,000 per dependent, a decrease of $1,600 from the tax year 2021. CDCC maximums have dropped to $2,100, from a reduction of $5,900 from the tax year 2021.

Changes to tax credits may directly affect the size of your refund. For example, last year, a tax bill of $300 and a maximum CTC of $3,600 could net a $3,300 refund. But this year, the lower maximum of $2,000 may only net a $1,700 refund.

But there is good news.

• Standard deductions are higher than tax year 2021. If you claim a standard deduction¹ this year, it could lower your taxable income by as much as $25,900, depending on your filing status. That’s an $800 increase from last year.
• Itemized deductions limitations didn’t change. Thanks to the Tax Cuts and Jobs Act, filers can claim unlimited itemized deductions¹. This is the fifth tax year filers have benefited from this option. Taxpayers typically choose to itemize their deductions if the total is greater than the amount they would receive by claiming a standard deduction.
• More tax help is available. Support is available to navigate what these changes mean to your specific situation. Taxpayers have access to 4,000 new customer service representatives¹ who can provide tax help over the telephone. There should be shorter wait times — even if you prefer
  in-person assistance. The IRS plans to hire 700 new employees at Taxpayer Assistance Centers1across the country.

  

Are You Expecting a Tax Refund?

Guard against a lost or stolen paper refund check by having it directly deposited into your checking or savings account. Taxpayers who choose direct deposit typically receive funds in less than 21 days. Check the status of your refund by using the Where’s My Refund? Tool.¹ To learn more about recent tax updates, visit irs.gov¹ or speak with a qualified tax professional. These resources can help you make the best filing decision for your situation.

 

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