Tax season starts today – and things are different this year: Here are six key changes you MUST know about
The Internal Revenue Service (IRS) officially begins accepting tax returns today – signaling the start of tax season.
In addition to making sure you’re aware of the specific tax laws in your state, experts urge Americans to review any significant changes that occurred in the year since they last filed a federal return.
For the 2023 tax year, there were adjustments to IRS programs, a broadening of tax brackets and an inflation-adjusted boost to the standard deduction.
A potential last-minute change to legislation – which includes an extension of the child tax credit – could also affect your 2023 return.
Here are six must-know changes as tax season kicks off.
Increase to tax brackets
When comparing the 2023 tax year to the 2022 tax year, there was a big change in the federal income tax brackets.
While the tax rates did not change, the brackets increased by about 7 percent. This was a larger increase than usual, reflecting the 40-year high inflation rates in 2022.
This means that higher incomes fall into lower brackets than in previous years, resulting in less income tax being paid.
A taxpayer whose income hasn’t really changed from last year, for example, could get a bigger refund, said tax preparation firm Jackson Hewitt Fortune.
In the 2022 tax year, for example, the marginal rate of 24 percent for individual filers was applied to taxable income of $89,075 to $170,050.
For the 2023 tax year, it will apply to taxable income from $95,375 to $182,100 — meaning more than $6,000 has moved to a lower bracket.
For example, someone earning $95,000 will pay hundreds of dollars less in federal taxes this year than last year.
In addition to making sure you’re aware of the specific tax laws in your state, experts urge Americans to review any key changes that occurred in the year since they last filed a federal return.
Greater standard deduction
The standard deduction – which is also adjusted for inflation – also increased by about 7 percent starting in the 2022 tax year.
That’s $13,850 for singles and $27,700 for married, joint filers.
Taxpayers claim the standard deduction to reduce their income by a predetermined amount.
But some taxpayers choose to itemize their deductions if they think the total will be greater than the standard deduction.
This tax year, Americans who are over 65 or blind and meet certain criteria set forth by the IRS are now also eligible for an extra standard deduction.
The additional standard deduction is $1,850 for singles or those filing as head of household, and $3,000 for married couples filing jointly with each spouse over 65.
This increases the total amount to $15,700 for singles and $30,700 for married couples.
Change to Free File program
The IRS has raised the income threshold for its Free file program for the 2023 tax year – $6,000 increase from last year to an adjusted gross income of $79,000 or less.
IRS Free File connects taxpayers with tax preparation and filing software industry companies, providing free online tax preparation and filing.
Direct file pilot
This tax year, the IRS is also testing a Direct file program – which is different from the Free File program.
The program allows eligible Americans to file their federal returns directly with the IRS at no cost.
The pilot is currently open to eligible taxpayers in 12 states – Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming.
The agency said qualified Americans must also report certain types of income, credits and deductions.
The pilot is initially limited to federal and state employees with relatively simple returns.
But by mid-March, the IRS is expected to open the program to private sector workers in the dozen eligible states.
The IRS in November delayed a 2023 reporting change for business payments made via apps like PayPal or Venmo (Photo: Commissioner Danny Werfel)
IRS 1099-K form changes delayed
In November of last year, the IRS announced that it had postponed a sweeping rule change that would affect Americans who earn through payment apps like Venmo, Cash App or PayPal or websites like eBay and Etsy.
The rule would have meant that Americans who earned $600 or more selling goods and services would have to report it with a 1099-K form — which reports business payments to the IRS.
But the statutory body said the rule would remain unchanged for the 2023 tax year – so only those who receive more than $20,000 and have more than 200 transactions need to report.
The law mainly affects gig economy workers such as hairdressers, taxi drivers and delivery couriers who may receive tips through such apps.
IRS officials say one reason for the delay is taxpayer confusion about what kinds of transactions are reportable.
For example, peer-to-peer transactions, such as selling a couch or car, sending rent to a roommate, and buying concert tickets would not be reportable, while other purchases would be.
“Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it avoids unnecessary confusion,” said IRS Commissioner Danny Werfel.
Even though the IRS has delayed the rule change, you may still receive a 2023 1099-K in the coming weeks from a third-party company that paid you through an online platform.
Make sure all transactions reported on it reflect business transactions and not personal items, said Tom O’Saben, director of tax content and government relations at the National Association of Tax Professionals. CNN.
If the form does include some personal transactions, include all the information from your 1099-K on your return, but exclude those personal transactions and include a note warning the IRS that the amount you deducted is not business income isn’t, O’Saben advised.
Remember, whether you receive a 1099-K or not, you are legally required to report all taxable income on your federal income tax return.
Ways and Means Chairman Jason Smith, R-Mo., authored the bill that would expand the child tax credit
Proposed changes to the child tax credit
Although tax season is now officially underway, Congress is debating changes to legislation that include an enhanced child tax credit.
If approved, the bipartisan tax deal would benefit about 15 million children in the U.S. — and offer corporations some tax breaks in return.
Lawmakers tried to pass the changes before tax season began.
Some have suggested that if the bill manages to become law this tax season, filers may have to amend their returns. Others said it could be applied retroactively to 2023 tax returns if approved in the coming weeks.