What's new and what to consider for the 2023 tax-filing season
The IRS continues to provide tips to help tax professionals and taxpayers as we approach the 2023 tax filing season. The agency provides a page to help taxpayers "get a jump" on their 2023 taxes, which is updated periodically. Professionals struggling with late and unprepared clients – the top challenge that firms reported struggling with in 2022, according to our 2022 Annual Accounting Industry Survey – could leverage the IRS website to help reduce this challenge during the 2023 tax season.
In addition to the IRS website, here is a compilation of what's new – and key items to consider – as you prepare for the 2023 filing season.
Reporting rules changed for Form 1099-K
Taxpayers who have received third-party payments in tax year 2022 for goods and services that exceeded $600 should receive Form 1099-K, payment card and third-party network transactions.
Before 2022, Form 1099-K was issued for third-party networks transactions only if both of the following conditions were met:
- The total number of transactions exceeded 200.
- The aggregate amount of transactions exceeded $20,000
However, the American Rescue Plan Act of 2021 (ARPA) changed those conditions, lowering the reporting threshold for third-party networks that process payments for those doing business.
For tax year 2022, a single transaction exceeding $600 can require the third-party platform to issue a 1099-K. The net effect of this change is that many more taxpayers will receive 1099-Ks.
Advice for tax pros: prepare clients who may be impacted by this change now to preempt panicked phone calls when these 1099-Ks start rolling in. Also important is reassuring clients that cash received through third-party payment networks from friends and relatives as personal gifts or reimbursement for personal expenses is not taxable.
Some tax credits have returned to 2019 levels.
Many of the pandemic-era and ARPA credits expired at the end of 2021, so many tax credits have returned to pre-pandemic levels. Impacted credits include the Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and Child and Dependent Care Credit. Due to these changes, many taxpayers will likely receive a significantly smaller refund compared with the previous tax year.
Examples of changes include:
- Taxpayers who received $3,600 per dependent in 2021 for the CTC will, if eligible, get $2,000 for the 2022 tax year.
- For the EITC, eligible taxpayers with no children who received roughly $1,500 in 2021 will now receive $500 in 2022.
- The Child and Dependent Care Credit returns to a maximum of $2,100 in 2022 instead of $8,000 in 2021.
See the credits and deductions section of the IRS website for more details.
Advice for tax pros: if you haven't already had conversations with clients who these changes may have impacted, do so now to prevent conversations about why refunds have deceased – or payment amounts have increased – after the client's taxes have been prepared.
In 2022, there are no above-the-line charitable deductions.
During COVID, taxpayers could take up to a $600 charitable donation tax deduction on their tax returns. That change has expired, so in 2022, those who take a standard deduction may NOT take an above-the-line deduction for charitable donations.
Advice for tax pros: the expiration has not been well-communicated, and many taxpayers believe that the above-the-line deduction continues to be available to those taking the standard deduction. Communicate this change with clients, so they are prepared for the change.
The Premium Tax Credit is still available – and may be available to more taxpayers.
The premium tax credit– also known as PTC – is a refundable credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the Health Insurance Marketplace.
For tax years 2021 and 2022, the (ARPA) temporarily expanded the premium tax credit eligibility, eliminating the rule that a taxpayer with household income above 400% of the federal poverty line cannot qualify for a premium tax credit.
Advice for tax pros: review your files to determine clients who may qualify for the expanded credit.
Eligibility rules to claim a tax credit for clean vehicles has changed.
The passing of the Inflation Reduction Act of 2022 (IRA) has shaken up electric/clean vehicles with multiple – and detailed – changes. Tax credits available under section 30D (EV credit) for purchasing a new electric vehicle after August 16, 2022 (when the Inflation Reduction Act of 2022 was enacted) are generally available only for qualifying electric vehicles for which final assembly occurred in North America.
The Department of Energy has provided a list of Model Year 2022 and early Model Year 2023 electric vehicles that may meet the final assembly requirement.
Note that because some models are built in multiple locations, vehicles on the Department of Energy list may not meet the final assembly requirement in all circumstances.
Advice for tax pros: Review the changes under the IRA to understand who – and what – qualifies for a clean vehicle credit, and advise your clients to do the same before purchasing a vehicle while relying on the clean vehicle credit.
Look for more guidance on how to get ready for the tax filing 2023 season in the next few weeks.