It’s time for more US tax updates! Two important areas of focus this week: 1) 2022 Tax Year Benefit Changes and 2) Tax Brackets for 2023. Let’s get you ready for tax preparation and filing for the 2022 calendar year.
On Friday October 21st, the IRS also announced the inflation-adjusted employee contribution limit for 401(k)s will be $22,500 for 2023. And, those with traditional or Roth IRAs can contribute up to $6,500, up from $6,000 this year.
2022 Tax Year Benefit Changes
The Street had an excellent article this week. The link to read the entire article is: https://www.thestreet.com/taxes/tax-benefits-changing-tax-year-2022 I will include what to expect for 2022 with specific benefits.
How is Child Tax Credit changing and how much is it for tax year 2022?
For tax year 2022, the Child Tax Credit reverts back to the benefits available prior to the American Rescue Plan as follows:
- Reverts back to up to $2,000 for 2022 – 2025
- Each dependent child must be under 17
- Refundable up to $1,400, but no longer fully refundable
- Advance payments were not issued for tax year 2022
- The credit is available if you earn up to $200,000 and up to $400,000 if you are married and filing jointly
How is Child and Dependent Care Credit changing for tax year 2022?
For tax year 2022, the Child and Dependent Care Credit adjusts back to the pre-2021 provision and changes back to:
- Up to 35% of $3,000 ($1,050) of child care expenses for a dependent child under 13, an incapacitated spouse or parent, or another dependent so that you can work or look for work. If you have two or more dependents, the credit will be up to 35% of $6,000 in expenses ($2,100).
- The credit will be reduced for incomes over $15,000
How is Earned Income Tax Credit changing for tax year 2022?
For tax year 2022, the Earned Income Tax Credit goes back to the pre-2021 provisions.
- Age requirements revert back. Taxpayers with no kids have to be 25 or under 65 to claim the credit
- Previous year income cannot be used to help you qualify for Earned Income Tax Credit
Can I still deduct up to $300 in cash donations if I claim the standard deduction?
For tax year 2022, you can no longer claim the deduction for cash donations up to $300 ($600 married filing jointly) if you claim the standard deduction. If you can itemize your deductions you will still be able to claim your charitable deductions.
Tax Brackets for 2023
CNBC and Tax Foundation.org each posted information this week about what to expect for new tax brackets for 2023. Due to the inflation reports, the IRS has released higher tax brackets to adjust for inflation. The IRS website has posted the following information.
Highlights of changes in Revenue Procedure 2022-38:
The tax year 2023 adjustments described below generally apply to tax returns filed in 2024. The tax items for tax year 2023 of greatest interest to most taxpayers include the following dollar amounts:
- The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700 up $1,800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900, and for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the amount for tax year 2022.
- Marginal Rates: For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).
- The other rates are:
- 35% for incomes over $231,250 ($462,500 for married couples filing jointly);
32% for incomes over $182,100 ($364,200 for married couples filing jointly);
24% for incomes over $95,375 ($190,750 for married couples filing jointly);
22% for incomes over $44,725 ($89,450 for married couples filing jointly);
12% for incomes over $11,000 ($22,000 for married couples filing jointly).The lowest rate is 10% for incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).
- The Alternative Minimum Tax exemption amount for tax year 2023 is $81,300 and begins to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption begins to phase out at $1,156,300). The 2022 exemption amount was $75,900 and began to phase out at $539,900 ($118,100 for married couples filing jointly for whom the exemption began to phase out at $1,079,800).
- The tax year 2023 maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers who have three or more qualifying children, up from $6,935 for tax year 2022. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
- For tax year 2023, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $300, up $20 from the limit for 2022.
- For the taxable years beginning in 2023, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,050. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $610, an increase of $40 from taxable years beginning in 2022.
- For tax year 2023, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,650, up $200 from tax year 2022; but not more than $3,950, an increase of $250 from tax year 2022. For self-only coverage, the maximum out-of-pocket expense amount is $5,300, up $350 from 2022.
- For tax year 2023, for family coverage, the annual deductible is not less than $5,300, up from $4,950 for 2022; however, the deductible cannot be more than $7,900, up $500 from the limit for tax year 2022. For family coverage, the out-of-pocket expense limit is $9,650 for tax year 2023, an increase of $600 from tax year 2022.
- For tax year 2023, the foreign earned income exclusion is $120,000 up from $112,000 for tax year 2022.
- Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000, up from a total of $12,060,000 for estates of decedents who died in 2022.
- The annual exclusion for gifts increases to $17,000 for calendar year 2023, up from $16,000 for calendar year 2022.
- The maximum credit allowed for adoptions for tax year 2023 is the amount of qualified adoption expenses up to $15,950, up from $14,890 for 2022
Items unaffected by indexing:
By statute, certain items that were indexed for inflation in the past are currently not adjusted.
- The personal exemption for tax year 2023 remains at 0, as it was for 2022, this elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
- For 2023, as in 2022, 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
- The modified adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit provided in § 25A(d)(2) is not adjusted for inflation for taxable years beginning after December 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).
Overall Prep
Knowing how crazy all the details can make you, my aim is to inform you and encourage you to take action about you/your life. Sometimes the realities in/of life are rough. It’s much easier to prepare in advance of a storm than during the storm.
Trying to think clearly in the moment isn’t easy. Having a “go to plan” allows you a bit of control when things seem out of control. To begin yours, send me a note: Lynn@thelivingplanner.com or call/text my office +1951.400.5966 and we’ll discuss yours.
For general information about what I do and why I do it, my website is: https://thelivingplanner.com and my online courses/resources will give you an idea of what I offer to assist people, pets and businesses here: https://courses.thelivingplanner.com
This quote sums it up nicely. “You will never be completely ready. Start from wherever you are.” ~ C.J. Hayden 💗 –Lynn
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