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WASHINGTON — The Internal Revenue Service encouraged taxpayers to take important actions this month to help them file their 2022 federal tax returns.
This is the second in a series of reminders to help taxpayers get ready for the upcoming tax filing season. A "Get Ready" page outlines steps taxpayers can take now to make tax filing easier in 2023.
Here's what's new and some key items for taxpayers to consider before they file next year.
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.
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.
Visit Credits and Deductions for more details.
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.
Many different factors can affect the timing of a refund after the IRS receives a return. Although the IRS issues most refunds in less than 21 days, the IRS cautions taxpayers not to rely on receiving a 2022 federal tax refund by a certain date, especially when making major purchases or paying bills. Some returns may require additional review and may take longer to process if IRS systems detect a possible error, the return is missing information or there is suspected identity theft or fraud.
Also, the IRS cannot issue refunds for people claiming the EITC or Additional Child Tax Credit (ACTC) before mid-February. The law requires the IRS to hold the entire refund – not just the portion associated with EITC or ACTC.
While major tax legislation failed to pass Congress in 2022, tax provisions were included in two major initiatives that were recently signed into law.
Tax law changes were included in the Inflation Reduction Act, which became law in August 2022, and the SECURE 2.0 Act, which was approved in December 2022.
Taxpayers also need to be prepared for changes scheduled to occur after December 31, 2025, which may result in higher taxes for some.
Along with many investors, it’s likely that you view taxes as an important consideration in your financial decision-making process. You want to pay careful attention to how new and potential changes to the tax code, along with economic developments, will affect your bottom line.
Congress debated numerous proposals to significantly change the tax code since the Biden Administration took office in 2021. But a number of major legislative proposals to alter the tax code failed to pass. Nevertheless, some notable tax provisions were included in the Inflation Reduction Act that gained Congressional approval in August 2022, and in the SECURE 2.0 Act, signed into law in December 2022.
The Inflation Reduction Act includes provisions designed to address climate change, healthcare and corporate taxation. Within those measures are new provisions that may affect your tax bill and personal finances.
Based on the outcome of 2022’s mid-term elections, the prospects of major new tax provisions being passed in the session of Congress that began in January 2023 appear slim. The new makeup of Congress has Republicans in control of the House by a narrow majority, while Democrats control the Senate by a narrow majority. “Members of the House and Senate can be expected to put tax legislation forward in the next two years,” says Kevin MacMillan, head of state and federal government relations at U.S. Bank, “but don’t expect anything major to gain passage in both houses.”
Nevertheless, it’s important to be aware of changes that were approved in 2022 under the Inflation Reduction Act and the SECURE 2.0 Act. In addition, certain tax laws put into place in 2017 are closing in on their “sunset” dates. That means if no action is taken by Congress, notable changes to the tax law will occur regardless as older tax provisions, in place prior to 2017, will be reinstated. It’s also important to consider how economic factors, such as inflation and higher interest rates, may affect tax-saving strategies you consider.
Tax and other provisions of the Inflation Reduction Act
The Inflation Reduction Act includes provisions designed to address climate change, healthcare and corporate taxation. Within those measures are new provisions that may affect your tax bill and personal finances. They include the following:
Clean energy tax credits for homeowners
Tax credits are extended to 2032 incentivizing homeowners to add solar or wind power systems. Eligible homeowners could qualify for a 30% tax credit. After 2032, a 26% tax credit would apply until 2034. Tax incentives are also included for the purchase of energy-efficient water heaters, heat pumps and HVAC systems. Rebates for these items can add up to as much as $14,000. These rebates take effect immediately.
Rebates for electric vehicle purchases
Existing tax credits for the purchase of a new electric vehicle are extended through December 2032. The credit applies to any “clean” vehicle, including hydrogen fuel cell cars within price limits. To qualify, vehicles must be assembled in North America and be priced under $80,000 for trucks and SUVs and under $55,000 for all other types of cars.
Qualified buyers of new vehicles receive a $7,500 credit, applied at the point of sale. A new $4,000 tax credit would also apply for the purchase of qualified used electric vehicles. The credit is available to married couples filing a joint return with income less than $300,000 per year and single tax filers with income under $150,000. The credits are effective immediately, but starting in 2024, qualifying vehicles must meet other requirements for American-made components, including batteries.
Affordable Care Act premium subsidies
Subsidies for health insurance under the Affordable Care Act were expanded in the wake of the COVID-19 pandemic but scheduled to expire at the end of 2022. The Inflation Reduction Act extends those subsidies through 2025. This is expected to benefit up to 13 million Americans who purchase health insurance under the Affordable Care Act.
Managing prescription drug prices for seniors
The new law opens the door for Medicare to negotiate drug prices. Beginning in 2023, this will involve only 10 specific drugs, but the list will eventually be expanded to 20. This is designed to lower the cost of medications to Medicare beneficiaries.
Another provision caps Medicare beneficiaries’ drug costs to $2,000 per year beginning in 2025, with some reduced costs taking effect in 2024. Drug manufacturers will be required to pay a rebate if they increase prices faster than Medicare’s rate of inflation, a law that takes effect in 2023. In addition, the Inflation Reduction Act provides seniors with free vaccinations beginning in 2023.
Expanded IRS Enforcement
The legislation provides an additional $80 billion in funding over ten years designed to allow the IRS to pursue more tax enforcement. The purpose is to boost tax collections through increased audits and other enforcement actions. The expanded funding begins immediately.
15% corporate minimum tax
A critical provision applies to most U.S. corporations that earn more than $1 billion in profits. While under current law, these firms are subject to a 21% corporate tax rate, many pay less or no federal tax. Under this change, a new minimum 15% tax would apply based on annual income posted in a corporation’s financial statement, rather than the corporation’s taxable income, effective on January 1, 2023.
Corporations will still have the ability to claim certain credits to reduce their tax liability. A special carve-out provision in this law applies to subsidiaries of private equity firms that amass more than $1 billion in profits annually. Private equity firms that own various subsidiaries with profits totaling more than $1 billion are exempt from the 15% minimum tax.
Tax on stock buybacks
Corporations have commonly repurchased their own stock as a way to boost the value of their shares. The Inflation Reduction Act adds a 1% tax on the value of stock buybacks corporations choose to execute, effective January 1, 2023.