2022 - 2023 News and Updates
What's new and what to consider when filing in 2023
IRS-2022-213, December 6, 2022
Here's what's new and some key items for taxpayers to consider before they file 2022 taxes.
Reporting rules changed for Form 1099-K. Taxpayers should receive Form 1099-K, Payment Card and Third Party Network Transactions, by January 31, 2023, if they received third party payments in tax year 2022 for goods and services that exceeded $600.
There's no change to the taxability of income. All income, including from part-time work, side jobs or the sale of goods is still taxable. Taxpayers must report all income on their tax return unless it's excluded by law, whether they receive a Form 1099-K, a Form 1099-NEC, Nonemployee Compensation, or any other information return.
Prior to 2022, Form 1099-K was issued for third party networks transactions only if the total number of transactions exceeded 200 for the year and the aggregate amount of these transactions exceeded $20,000. The American Rescue Plan Act of 2021 lowered the reporting threshold for third party networks that process payments for those doing business.
Now a single transaction exceeding $600 can require the third party platform to issue a 1099-K. Money received through third party payment networks from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable.
The IRS cautions people in this category who may be receiving a Form 1099 for the first time – especially "early filers" who typically file a tax return during the month of January or early February – to be careful and make sure they have all of their key income documents before submitting a tax return. A little extra caution could save people additional time and effort related to filing an amended tax return. And if they have untaxed income on a Form 1099 that isn't reflected on the tax return they initially file, that could mean they need to submit a tax payment with an amended tax return.
If the information is incorrect on the 1099-K, taxpayers should contact the payer immediately, whose name appears in the upper left corner on the form. The IRS cannot correct it.
No above-the-line charitable deductions. During COVID, taxpayers could take up to a $600 charitable donation tax deduction on their tax returns. However, in 2022, those who take a standard deduction may not take an above-the-line deduction for charitable donations.
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.
Eligibility rules changed to claim a tax credit for clean vehicles. Review the changes under the Inflation Reduction Act of 2022 to qualify for a Clean Vehicle Credit.
You can save a bit more in your health savings account (HSA). For 2022, the maximum you can contribute to an HSA is $3,650 for an individual (up $50 from 2021) and $7,300 for a family (up $100). People age 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). Learn more about the benefits of an HSA.
Income tax brackets shifted a bit. There are still seven tax rates, but the income ranges (tax brackets) for each rate have shifted slightly to account for inflation.
The standard deduction increased slightly. After an inflation adjustment, the 2022 standard deduction increases to $12,950 for single filers and married couples filing separately and to $19,400 for single heads of household, who are generally unmarried with one or more dependents. For married couples filing jointly, the standard deduction rises to $25,900.
Itemized deductions remain mostly the same. For most filers, taking the higher standard deduction is more practical and saves the hassle of keeping track of receipts. But if you have enough tax-deductible expenses, you might benefit from itemizing.
The following rules for itemized deductions haven't changed much for 2022, but they're still worth pointing out.
- State and local taxes: The deduction for state and local income taxes, property taxes, and real estate taxes is capped at $10,000.
- Mortgage interest deduction: 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.
- Medical expenses: Only medical expenses that exceed 7.5% of adjusted gross income (AGI) can be deducted in 2022.
- Charitable donations: The deductions for charitable donations are not as generous as they were in 2021. In 2022, the annual income tax deduction limits for gifts to public charities1 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.
- Miscellaneous deductions: No miscellaneous itemized deductions are allowed.
Some tax credits return to 2019 levels. This means that affected taxpayers will likely receive a significantly smaller refund compared with the previous tax year. Changes include amounts for the Child Tax Credit (CTC), Earned Income Tax Credit (EITC) and Child and Dependent Care Credit.
- Those who got $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 get $500 in 2022.
- The Child and Dependent Care Credit returns to a maximum of $2,100 in 2022 instead of $8,000 in 2021.
The Child Tax Credit is lower after a one-year bump. Tax credits, which reduce the tax you owe dollar for dollar, are normally better than deductions, which reduce how much of your income is subject to tax.
In 2021, the American Rescue Plan Act (ARPA) temporarily enlarged the Child Tax Credit. But in 2022, the credit returns to $2,000 per child age sixteen or younger. 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 the AMT exemption enacted by the Tax Cuts and Jobs Act expires in 2025, the AMT will continue to affect mostly households with incomes over $500,000. For 2022, the AMT exemptions are $75,900 for single filers and $118,100 for married taxpayers filing jointly. The phase-out thresholds are $1,079,800 for married taxpayers filing a joint return and $539,900 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 tax exemption is even higher. The estate and gift tax exemption, which is indexed to inflation, rises to $12.06 million for 2022. But the now-higher exemption is set to expire at the end of 2025, meaning it could be essentially cut in half at that time if Congress doesn't act.
The annual gift exclusion, which allows you to give money to your loved ones each year without incurring any tax liability or using up any of your lifetime estate and gift tax exemption, increases to $16,000 per recipient (up $1,000 from 2021).
Foreign earned income exclusion: The foreign earned income exclusion increases to $112,000 in 2022.
Educator expense deduction: For tax year 2022, the educator expense deduction is increased to $300.
Mortgage debt forgiveness: In most instances, forgiven debt is counted as taxable income because removing liabilities from your name amounts to the same as receiving income in the eyes of the IRS. Congress made a special exception for forgiven mortgage debt of up to $2 million if used to buy, build, or substantially improve your principal residence. The Consolidated Appropriations Act, 2021 reduced this amount to $750,000 ($375,000 if married filing separately) and extended it through the end of 2025
IRA contribution limits remain the same and 401(k) limits are slightly higher. The traditional IRA and Roth contribution limits in 2022 remain the same as the prior year. Individuals can contribute up to $6,000 to an IRA, and those age 50 and older also qualify to make an additional $1,000 catch-up contribution. If you're able to max out your IRA, consider doing so—you may qualify to deduct some or all of your contribution.
However, the 2022 contribution limits for 401(k) accounts have increased to $20,500. If you're age 50 or older, you qualify to make an additional $6,500 catch-up contribution for this tax year as well.
Don’t get caught off guard. Due to the SECURE Act 2.0, a law governing retirement savings (e.g., the age at which individuals must begin taking required minimum distributions (RMDs) from their retirement account will change from 72 to 73 beginning January 1, 2023). So if you're age 73 or older, make sure you've taken your required minimum distribution (RMD) from your retirement accounts before the end of the year or else you face a 50% penalty on any undistributed funds (unless it's your first RMD, in which case you can wait until April 1, 2023).
If you haven't contributed to your retirement accounts already, now is the time. Review your earnings for the year and take advantage of any deductions that can lower your tax bill. Also, keep an eye on Washington for any last-minute tax changes that can affect your return before you file. Tax season will be here before you know it, and it's never too early to start preparing.
1Operating charities, or qualifying public charities, are defined by Internal Revenue Code section 170(b)(1)(A). You can use the Tax Exempt Organization Search tool on IRS.gov to check an organization's eligibility.