The US tax system is constantly evolving and still adapting to multiple tax changes that took place to provide economic relief to individuals and businesses during the COVID-19 pandemic. While major tax changes from recent years generally remain in place, including lower income tax rates, larger standard deductions, and more, there are a number of changes that take effect to aid the nation to return to pre-COVID tax rules. These are the tax changes that individual tax filers of 2023 should be aware of when preparing their taxes.
Tax changes for individuals
Tax changes for individuals to keep in mind when filing your taxes for 2022:
- Many of the tax benefits that came about as a result of the pandemic, ends or returns to its pre-pandemic stance.
- Expanded health insurance subsidies have been extended through 2025.
- The child tax credit (CTC) has returned to its pre-pandemic stance
Tax changes relating to dependents
The 2021 enhancements to the credit for child and dependent care expenses have expired. For 2022, the credit for child and dependent care expenses is nonrefundable and you may claim the credit on qualifying employment-related expenses of up to $3,000 if you had one qualifying person, or $6,000 if you had two or more qualifying persons. The maximum credit is 35% of your employment-related expenses.
In 2022 the following tax changes concerning dependents come into effect:
• The CTC returns to $2,000
• The age of a qualifying child decreases to under age 17
• The child and dependent care credit revert to its pre-pandemic stance
Tax changes relating to education
Taxpayers who are paying or saving for their own or their dependents’ education have several opportunities to maximize education-related tax benefits before year-end.
If you are paying for your own or the education of a dependent, you can minimize your tax obligation between 2021-2025, as payments for many public and private student loans are excluded from your total gross income during this period.
Education-related tax deductions:
- Tuition and fees
- Qualified student loan interest deduction
- Qualified education expenses
- Qualified business deduction for work-related education
In addition to the deductions above, 529 plans, also known as a qualified tuition plan, which is a tax-advantaged savings
plan, can aid tax savings. These plans are designed to encourage saving for education and are considered completed gifts for federal gift tax purposes.
Increasing and decreasing AGI
There are several changes to take note off in terms of AGI. Contribution amounts and carryover periods for unused amounts in a health flexible spending arrangement (health FSA) and dependent care (DC) FSAs have changed and IRA contributions have been adjusted.
These are the IRA contributions changes to be aware of in 2023:
- The modified AGI limit for traditional IRA contributions increased
- Modified AGI limit for certain married individuals increased
- Modified AGI limit for Roth IRA contributions increased
Visit the IRS website for more information
Standard and itemized deductions
Taxpayers can maximize opportunities to reduce taxable income through itemizing deductions or claiming the standard deduction.
In 2022 the following changes apply to standardized and itemized deductions:
• Temporary suspension of the AGI percentage limitations for charitable contribution deductions expired on December 31, 2021.
• The temporary charitable contribution deduction for nonitemizers also expired on December 31, 2021.
• Teachers can deduct out-of-pocket classroom expenses including COVID-19 protective items.
Disaster losses
You may deduct casualty and theft losses relating to your home, household items, and vehicles on your federal income tax return if the loss is caused by a federally declared disaster. You may not deduct casualty and theft losses covered by insurance, unless you file a timely claim for reimbursement and you reduce the loss by the amount of any reimbursement or expected reimbursement.
Taxpayers with disaster losses in the current tax year need to determine whether to take them on this year’s return or elect to deduct them in the immediately preceding year.
In 2023, Federally declared disasters for 2022 include Hurricane Ian, Hurricane Fiona, and several other storms, floods, and wildfires
Earned income tax credit
The earned income tax credit (EITC) is determined based on a taxpayer’s earned income from wages and other sources.
To claim the Earned Income Tax Credit (EITC), you must have what qualifies as earned income and meet certain adjusted gross income (AGI) and credit limits for the current, previous and upcoming tax years.
There are a number of changes that relate to this tax credit in the current tax year:
• For 2022, the maximum earned income credit is $6,935 for those with three or more qualifying children.
- The EITC credit ranges between the following for the different groups:
- $11 to $6,935 with three or more qualifying children
- $10 to $6,164 with two qualifying children
- $9 to $3,733 with one qualifying child
- $4 to $560 with no qualifying children
• The amount of disqualified income (generally investment income) a taxpayer may have before losing the entire earned income tax credit is $10,300 for 2022.
• The under-65 maximum age limit for claiming the credit, for those who don’t have a qualifying child, is reinstated for the 2022 tax year.
Use the EITC tables to look up maximum credit amounts by tax year.
Gift tax
For 2022, up to $16,000 of gifts made by a donor is excluded from your taxable gift submission to the IRS. The exclusion increases to $17,000 in 2023. A gift that qualifies for the exclusion is not subject to gift tax.
At Fusion, we help individuals and businesses submit their taxes timeously to the IRS. We look at your income and expenses holistically to ensure accurate submissions to the IRS, to help you remain tax compliant, and make sure that you are making use of all the relevant deductions available to you.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.