Biggest Tax Changes For 2023
The Inflation Reduction Act is ushering in a number of changes for this tax season. It might look easy to get overwhelmed. However, many of these changes are beneficial. While the tax code as a whole is too large to keep up with every time it’s changed, do what you can to know the parts of it that affect you, both positively and negatively. Here are the changes coming this year that could potentially impact you.
Firstly, no new stimulus checks were issued in 2022… This means taxpayers don’t have to worry about receiving letters from the IRS confirming the amount in stimulus checks they received to file taxes. They also now can’t claim a Recovery Rebate Credit.
Next, the amount of Child Tax Credit (CTC), Earned Income Tax Credit (EITC) child care credit return, and dependent care credit return. These all returned to pre-pandemic levels. The enhanced CTC was not extended. And, returns to $2,000 per child dependent for the 2022 tax year, down from the previous year’s $3,600. The other big change to the CTC is that it is, going forward, no longer refundable. This means taxpayers won’t receive the full credit if it’s larger than the tax they owe.
$500 is the maximum amount that single filers with no children can get from the EITC. This, down from last year’s $1,500 when income thresholds were temporarily expanded. Similarly, Child and Dependent Care credit is now worth up to $2,100, down from $8,000 the previous year.
Inflation Reduction Act Tax Breaks
The Inflation Reduction Act provided a few new tax breaks the filers could take advantage of in the 2022 tax year. It increased the Residential Clean Energy Credit. Now, you can subtract 30% of the installation cost for solar heating, solar electricity, and other solar products from the home. This is up from 26%. Furthermore, the act removed the principal residence restriction. This means that homeowners who installed solar products on second or vacation homes are also eligible for the credit.
Next, those who bought a new electric vehicle between August 17th, 2022, and December 31st, 2022 must now show that the vehicle underwent final assembly here in North America to qualify to receive the Qualified Plug-in Electric Drive Motor Vehicle Credit. This requirement doesn’t apply to vehicles purchased earlier in 2022, when the act wasn’t signed.
Homeowners who pay a mortgage insurance premium or for private mortgage insurance can no longer deduct this on their itemized taxes. Lenders generally require mortgage insurance as protection from default for homeowners who put less than 20% down when purchasing a home. This deduction was enacted under Section 419 of the Tax Relief and Health Care Act of 2006. It has been extended annually. However, it was not renewed for the 2022 tax year and is no longer available to be itemized.
Some employers continued remote and hybrid work into 2022. Is your employer outside the state where you worked remotely? This might come with implications on your state taxes this year.
In 2020 and 2021, some states enacted temporary relief provisions to avoid double taxation of income by two states. Both the state where your employer is located, and the state where you worked from. But many of those provisions expired at the start of 2022. Some workers unfortunate enough to work remotely while assigned to an office in certain states, such as Delaware, Nebraska, New York, Pennsylvania, or Connecticut, may find themselves double taxed, and unable to claim credit for taxes paid to other states.
Lastly, there was a change to the tax deadline. The tax deadline is typically April 15th. However, this is not the case this year. The deadline this year to file your federal returns is April 18th. This is because April 15th falls on a Saturday, and the next business day, Monday, the 17th, is a local holiday in D.C., that the IRS observes. Victims of severe storms in California, Georgia, and Alabama have until May 15th to file their returns.