Highlights of Tax Changes for 2023

This tax season brings several tax changes for 2023 to the standard deductions and tax breaks available. Most notably, many of the pandemic-era credits have expired. However, in a turn of events, the Inflation Reduction Act offers two eco-friendly incentives for taxpayers. Additionally, previous homeowner deductions are now gone, and remote workers may face double taxation – both of which should be kept in mind before filing federal returns by the deadline.

Instead of stressing over all the alterations in taxation, those filing taxes should concentrate on how the tax changes for 2023 will apply to their returns and entrust PriorTax Tax Professionals with any other details. This way, they can avoid feeling overwhelmed by the changes.

As it is challenging to stay current with all updates in tax regulations, taxpayers familiarize themselves with their particular set of laws. When preparing for 2022 taxes, review your 2021 return to see which data and documents you need. Additionally, consider any occurrences from 2022 that may have a bearing on your taxes.

These are the Highlight to Tax Changes for 2023 that Could Affect You

Tax credits specific to the pandemic will not be available in 2022.

During the economic crisis caused by COVID-19, certain modifications were made to the tax code as a response. Unfortunately, these temporary measures will soon come to an end; most of them will no longer be applicable in the upcoming fiscal year.

For 2022, the IRS did not issue any new Economic Impact Payments. 

Therefore, taxpayers can avoid having to deal with notifications from the IRS confirming their stimulus check amount when filing taxes, nor can they take advantage of a Recovery Rebate Credit.

Key Pandemic Era Tax credits return back to Pre-Pandemic 2019 levels.

The impacts of the Coronavirus pandemic on 2020 tax credits will be reversed in 2021, as CTC, EITC, and the Child and Dependent Care Credit all return to their pre-pandemic levels.

For tax changes for 2023, there is a steep decline in terms of Child Tax Credit (CTC), and it will go back to $2,000 per child dependent. Another noteworthy alteration of CTC is that it’s no longer refundable. Consequently, this implies that taxpayers won’t acquire their full credit even when it surpasses their own tax obligation.

Though they were temporarily increased last year, single filers with no children are now entitled to only $500 from their Earned Income Tax Credit (EITC), a decrease from its previous maximum of $1,500.

For the 2022 tax year, the Child and Dependent Care Credit will decrease substantially from its 2021 value of $8,000 to a maximum of $2,100. This credit takes into account expenses for child care and day camps incurred out-of-pocket.

Charitable deductions must be itemized.

When taxpayers file their 2022 tax returns, any donations to charities must be listed on the Schedule A form in order to qualify for a deduction. This is a significant tax changes for 2023 from the two previous years when an above-the-line deduction was available for those who donated.

This year, single filers and married couples filing jointly have the opportunity to take advantage of a generous deduction on charitable donations. In addition, the 2021 revision to the CARES Act has allowed an increase up to $300 for single tax filers and those married joint tax filing separately, as well as $600 for joint filers. This marks a substantial growth from 2020, where only single filers and those filing jointly could deduct up to $300, with married filing separately taxpayers able to deduct up to $150.

Are you aware of the tax breaks offered by the Inflation Reduction Act?

Since its signing into law in August 2020, it has provided a handful of beneficial options that can be taken advantage of when filing taxes in 2022.

The Residential Clean Energy Credit has been improved. 

Homeowners can now benefit from a 30% reduction of the costs for solar panel installation, in addition to solar heating products and other related items – an increase from its original 26%. Additionally, there is no limit on how much money can be used for credit or income restriction.

The act’s passage also provided a great incentive to those who own second and vacation homes. By removing the principal residence restriction, homeowners installing solar products on these alternative residences are qualified to receive the tax credit.

Eligibility for electric vehicle (EV) Tax Credit

The Qualified and Eligible Plug-in Electric Drive Motor Vehicle Credit, with a maximum of $7,500 depending on the battery capacity, is accessible to consumers who bought an EV. Those who purchased their car between August 17, 2022 and December 31, 2022 must display that the vehicle was finally assembled in North America to be eligible for this credit; however, those who purchased before August 17 do not need to meet these requirements. The Qualified Eligible Plug-in Electric Drive Motor Vehicle Credit, with a maximum of $7,500 depending on the battery capacity, is accessible to consumers who bought an EV. Those who purchased their car between August 17, 2022 and December 31, 2022 must display that the vehicle was finally assembled in North America to be eligible for this credit; however, those who purchased before August 17 do not need to meet these requirements.

The EV credits in 2022 have already been finalized. Taxpayers must double-check to ensure the purchased vehicle meets all requirements and that the correct credit amount was taken. When bought at a dealership, they cannot claim this credit on their tax return.

Mortgage insurance premium deduction expired.

For homeowners who could deduct their private or mortgaged insurance premium on their taxes, the Tax Relief and Health Care Act of 2006 — which annually extended the deduction — was not renewed for 2022. This means that individuals with a loan balance higher than 80% of the value of their home will no longer be able to itemize this payment. Typically, lenders require borrowers to pay into a mortgaged insurance policy when they put less than 20% down when purchasing a house as an extra protection against default.

Remote workers could face double taxation.

Employers who have decided to maintain part-time or hybrid schedules for their workers into 2022 should be aware of potential double taxation. In addition, depending on the state where the employer is located and where the employee is working remotely, there may be associated tax implications.

In recent years, some states have enacted temporary provisions to prevent double taxation of incomes generated in two separate states; however, these protections come to an end with 2021’s tax year. Therefore, it is important to ensure you are informed about any extra taxes that could arise as a result of continuing work remotely in 2022.

Tax day

As opposed to the customary April 15 tax deadline, individuals have until Tuesday, April 18, to file their federal returns in 2017. The reason for the shift from normal is due to the proximity of a Saturday, April 15, and a local holiday in D.C., which the IRS will observe. In addition, those struck by severe storms in California, Georgia, and Alabama can take advantage of an extended filing period; they have until May 15 to submit their paperwork.

This entry was posted on Thursday, February 2nd, 2023 at 8:00 am and is filed under Tax Deductions and Credits, Tax News, Tax Tips and Tricks, Tax Year 2022. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.