What to Know for 2023 Tax Year
By: Tax Hotline
Winter 2024 (Vol. 41, No. 4)
It is tax time again! Here's a quick review of key points:
Taxpayers get a little bigger break in the 2023 tax brackets. The rates didn’t change but due to inflation there was roughly a 7% increase in the brackets, which increased the amount of taxable income you can have in each level. This means you can earn a little more this year without fear of crossing to the next tax bracket.
The standard deduction was increased again this year. The good news is the standard deduction increased to $27,700 for married couples filing jointly and $13,850 for single filers. This reduces your taxable income but may make it harder for you to itemize and cause you to lose deduction such as medical expenses and charitable contributions.
The higher standard deduction that came with the Tax Cuts and Jobs Act of 2017 is scheduled to phase out in 2026, along with lower tax rates. This year may be a good time to consider tax planning moves such as Roth IRA conversions or accelerating income.
The mortgage interest deduction is limited to $750,000 of indebtedness. But people who had $1,000,000 of home mortgage debt before December 16, 2017, will still be able to deduct the interest on that loan. Only medical expenses that exceed 7.5% of adjusted gross income (AGI) can be deducted in 2023.
You can contribute up to $6,500 to an IRA, and those age 50 and older also qualify to make an additional $1,000 catch-up contribution. In addition, the 2023 contribution limits for tax-deferred 401(k)s and Roth 401(k)s have increased to $22,500. If you’re age 50 or older, you qualify to make an additional $7,500 catch-up contribution for this tax year as well.
For 2023, the maximum you can contribute to an HAS is $3,850 for an individual (up $50 from 2021) and $7,750 for a family (up $100). People 55 and older can contribute an extra $1,000 catch-up contribution. To be eligible for an HSA, you must be enrolled in a high-deductible health plan (which usually has lower premiums as well).
For this tax year, the Child Tax Credit is $2,000 per child under age 17. The credit is also subject to a phase-out starting at $400,000 for joint filers and $200,000 for single filers. For other qualified dependents, you can claim a $500 credit. The alternative minimum tax (AMT) exemption is higher.
Until it expires in 2025, the AMT will continue to have an impact on households with incomes over $500,000. For 2023, the AMT exemptions are $81,300 for single filers and $126,500 for married taxpayers filing jointly. The phase-out thresholds are $1,156,300 for married taxpayers filing a joint return and $578,150 for all other taxpayers. (Once your income for the AMT hits the phase-out threshold, your AMT exemption begins to phase out at 25 cents for every dollar over the threshold.)
The estate and gift tax exemption, which is indexed to inflation, and rose to $12,920,000 for 2023 is set to expire in 2025.
The annual gift exclusion, which allows you to give money to your loved ones each year without incurring any tax liability increases to $17,000 per recipient.
The annual income tax deduction limits for gifts to public charities are 30% of AGI for contributions of non-cash assets—if held for more than one year—and 60% of AGI for contributions of cash. If you give both cash and non- cash assets, the overall limit is generally 50% of AGI.
Want the secret to getting your refund check the fastest? Filing electronically with direct deposit is important because it can help avoid refund delays. If you need a tax refund quickly, don’t file on paper. Most people with no issues on their tax return should receive their refund within 21 days of filing electronically if they choose direct deposit.
It’s not too late to file a 2022 return. Even if you were not required to – you may have money to claim. You may qualify for certain tax credits or already paid some federal income tax by having taxes withheld from a paycheck. This can include students, part-time workers and retirees.
More people may be eligible for the Premium Tax Credit. For tax year 2022, taxpayers may still qualify for temporarily expanded eligibility for the Premium Tax Credit. (PTC) The PTC is for certain people who enroll, or whose family member enrolls, in a qualified health plan. Qualified taxpayers must file Form 8962 to compute and take the PTC on their tax return.
Worried about Identify theft or someone else claiming your dependent or grabbing a credit you are entitled to? File early. If someone else gets there before you, it will be you who will have to battle to get it back.
Eligibility rules changed to claim a tax credit for clean vehicles. If you purchased a clean new or used vehicle in 2023, you may be eligible for a credit up to $7500. Go to www.fueleconomy.gov to see if your vehicle qualifies.
You can track your refund. Taxpayers can check Where’s My Refund? on IRS.gov for a personalized refund status within 24 hours after the IRS accepts their e-filed tax return. The “Where’s My Refund?” tool updates once every 24 hours, usually overnight.
Don’t expect refunds that include the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) to be issued before mid-February. The reason why is the 2015 PATH Act law passed by Congress provided additional time to help the IRS process those returns and stop fraudulent refunds from being issued. The law requires the IRS to hold the entire refund – not just the portion associated with EITC or ACTC. Regardless, the IRS predicts most EITC/ACTC related refunds will be available in taxpayer bank accounts or on debit cards by Feb. 28 if they chose direct deposit and there are no other issues with their tax return.
Many taxpayers don’t realize they may be eligible for the EITC even if they can’t claim a qualifying child. If you are a grandparents raising your grandchildren, Native American, a veteran, self-employed, recently divorced, unemployed or experienced other changes to your marital, financial or parental status, not proficient in English, living in a rural area, receiving certain disability pensions or have children with disabilities – contact the IAS Tax Hotline for more info or go to the IRS.gov website and use the Interactive Tax Assistant to see if you quality.
Anyone can use the IRS.gov website Interactive Tax Assistant. This tool can help you determine if you need to file, what dependents you can claim, if your income is taxable, which expenses are deductible and more.
Need a copy of past years tax info? You can view or create an Online Account at IRS.gov. This will allow you to request a copy of the tax record you need online, including transcripts of past tax returns, tax account information, wage and income statements, and verification of non-filing letters. You can also view your account payment history, balances and make payment online.