Biggest Tax Changes For 2023
The Inflation Reduction Act is ushering in a number of changes to the 2022 tax year. It might seem easy to get overwhelmed with all the new rules. Some of these changes could make things harder for you, while others are quite beneficial. The tax code as a whole is too complex to keep up with every time changes are made to it. But still, do what you can to at least understand the parts of it that affect you, both positively and negatively.
Firstly: No new stimulus checks were issued in 2022. This means that 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-COVID 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.
Furthermore, $500 is the maximum amount that single filers with no children can get from the EITC. This is down from $1,500 the previous year, when income thresholds were expanded temporarily. Similarly, Child and Dependent Care Credit is now worth up to $2,100, down from the previous year’s $8,000.
Inflation Reduction Act Tax Breaks
The Inflation Reduction Act provided a few new tax breaks that filers could take advantage of during the 2022 tax year. It increased the Residential Clean Energy Credit. You can now subtract 30% (up from 26%) of the installation cost for solar heating, solar electricity, and other solar products for the home. 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.
Those who bought a new electric vehicle between August 17th, 2022, and December 31st, 2022 must now show that the vehicle underwent final assembly in North America in order to qualify to receive the Qualified Plug-in Electric Drive Motor Vehicle Credit. This requirement doesn’t apply to vehicles purchased earlier in the year, when the act wasn’t yet signed.
And, 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 4019 of the Tax Relief and Health Care Act of 2006. It’s since been extended annually. However, it wasn’t 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 for your taxes this year.
During 2020 and 2021, some states enacted temporary relief provisions to avoid double taxation of income by two states. These being, the state where your employer is located, and the state you worked from. However, as 2022 began, many of those provisions expired. Some workers were unfortunate enough to work remotely while assigned to an office in some states, such as Delaware, Nebraska, New York, Pennsylvania, or Connecticut. These particular workers might find themselves being double-taxed, and unable to claim credit for taxes paid to other states.
Lastly, there was a change to the tax deadline this year. Tax day 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 is the 17th, which is a local holiday in D.C.
Victims of severe storms in California, George, and Alabama have until May 15th to file their returns.