Tax Changes in 2023: Why Your Tax Refund May Be Less This Year (2023)

This story is part of Taxes 2023, CNET's coverage of the best tax software, tax tips, and everything you need to file your taxes and track your refund.

tax seasonis open now and the IRS will accept 2022tax returns. If you have received all the necessary documents, such asFormulario W-2j1099-K, you can use our tips for thatBest tax softwareto file your taxes today. However, you may want to tone down your expectations of a large tax refund.

Many of the pandemic tax benefits of recent years, such asthe extended child tax creditIn late 2021, temporary increases in child and dependent care credits and government stimulus payments ended, which could mean your reimbursement will be slightly smaller this year. And when youStarted a side job or freelance work., you may owe taxes this year.

When it comes to taxes, 2022 is the year of the big reset, said Mark Steber, Jackson Hewitt's chief tax information officer. "A lot of the things that are being rolled out for 2021 and some of the things that are being rolled out for 2020 will predate the pandemic years, which may result in a refund shock or, more importantly, a shock due."

Also, some new rules have been introduced. Third party payment apps likePaypal, Cash App und Venmoit will now report the money freelancers have made throughout the year to the IRS. Student loan forgiveness, if approved, is exempt from federal income tax, butBorrowers in some statesYou may owe taxes. And finally, if you have anycrypto activity over the last year,The tax office wants to know.

There's a lot to talk about, so we'll walk you through the top tax changes to prepare you for the upcoming tax season.

1. The rule deduction for 2022 is higher

It's typical of himincrease standard deductiona little each year, along with the rate of inflation. For your 2022 tax return, the standard deduction was increased to $12,950 for single parents (a $400 increase) and to $25,900 for jointly filed marriages (a $800 increase).

The standard deduction is what most taxpayers claim on simple tax returns to reduce their taxable income. If you receive a traditional paycheck from an employer and aren't eligible for many special deductions or credits, the standard deduction may make sense for you. If you have individual expenses or deductions that you wish to claim,as tax breaks for self-employment, you would not claim the standard deduction.

2. Income tax brackets are also higher in 2022

For the fiscal year 2022,Income tax brackets were also raisedto take inflation into account. Your income level refers to the amount of tax you owe based on your adjusted gross income, i.e. H. of the money you make before taxes, excluding individual exemptions and tax deductions.

While the changes were minor, if you were at the bottom of a higher tax bracket in 2021, you may have dropped to a lower rate for your 2022 tax return.

Tax brackets 2022 for single taxpayers

taxable income federal tax rate
$10,275 or less 10%
10.276 $ - 41.775 $ $1,027.50 plus 12% of income over $10,275
41.776 $ - 89.075 $ $4,807.50 plus 22% of income over $41,775
89.076 $ - 170.050 $ $15,213.50 plus 24% of income above $89,075
170.051 $ - 215.950 $ $34,647.50 plus 32% of income above $170,050
215.951 $ - 539.900 $ $49,335.50 plus 35% of income above $215,950
$539,901 or more $162,718 plus 37% of income above $539,900

Tax brackets 2022 for jointly assessed married taxpayers

taxable income federal tax rate
$20,550 or less 10%
20.551 $ - 83.550 $ $2,055 plus 12% of income over $20,550
83.551 $ - 178.150 $ $9,615 plus 22% of income over $83,550
178.151 $ - 340.100 $ $30,427 plus 24% of income above $178,150
340.101 $ - 431.900 $ $69,295 plus 32% of income over $340,100
431.901 $ - 647.850 $ $98,671 plus 35% of income above $431,900
$647,851 or more $174,253.50 plus 37% of income above $647,850

3. The child tax credit is back on track

Although 2021 had onetemporary extension of the child allowance, including dependent children and offering early payments, your taxes for 2022 will not.

The CTC has been reduced back to its pre-pandemic level of $2,000 per child or dependent and is now only available to children under the age of 17. The loan, which was fully reimbursable last year, is now only partially reimbursable for some low-income parents, eliminating prepayments. (Partially refundable means you can only receive a portion of that credit as a refund, although the full amount can be applied to your tax bill.)

However, you still need to claim the CTC in 2022 if you are eligible; It can help increase your refund or offset a tax bill. And though federal benefits have declined,Some states offer child tax creditsthis year and next.

4. Fewer taxpayers are eligible for the child and dependents tax credit

In 2021, the child and dependent caregiver tax credit was also temporarily expanded, allowing those earning $125,000 or less to deduct 20-50% of $4,000 (or $8,000 for parents with more than one child) of qualifying child care expenses. It was also refundable.

This tax relief also applies until 2022turned aroundto what it was in 2020. Now parents with one child can only claim up to 35% of a maximum of $3,000 in qualifying expenses for a maximum of $1,050. Parents with more than one child are eligible for up to 35% of up to $6,000 in qualifying expenses, up to a maximum of $2,100.

The biggest difference is the income qualification. To receive this credit in full in 2022, you must have earned $15,000 or less, a sharp drop from the $125,000 income threshold in 2021, although households earning up to $438,000 will receive at least a partial credit.

5. If you don't have children, it's more difficult to qualify for the Earned Income Tax Credit this year

Last year, more Americans were eligible to claim the Earned Income Tax Credit on their 2021 tax returns.the EITC jumps backon its pre-pandemic rules.

For your 2022 tax return, the maximum amount you can claim for the EITC if you have no children or dependents is $560, a decrease of $942 from last year's maximum of $1,502. Age requirements have also been reset to the original rules: you must be between 25 and 65 years old to qualify.

Due to inflation, however, the income requirements for the EITC and the maximum credits for people with children have increased slightly. 2022 Income Limits and Maximum Credit Rating Information are listed below:

EITC Earnings Thresholds for 2022 (For Maximum Credit)

number of relatives Presentation as single, head of family or widowed Married filing jointly
0 16.480 $ 22.610 $
1 43.492 $ 49.622 $
2 49.399 $ 55.529 $
3+ $53.057 59.187 $

Maximum EITC credit for 2022

number of relatives Maximum credit in 2022 Maximum credit in 2021 difference
0 $560 1.502 $ $942 less
1 3.733 $ $3.618 $115 increase
2 6.164 $ 5.980 $ Increase of $184
3 or more 6.935 $ 6.728 $ Increase by $207

6. If your student loans have been forgiven, you may owe state taxes

althoughwidespread government student loan reliefremains on hold, you may have received student loan forgiveness through the Government Loan Forgiveness Program or other similar measure. If you have credits forgiven in 2022, you will not owe federal taxes on the forgiven amount. That's because of a provision in the 2021 American Rescue Plan that prevents the federal tax exemption of post-secondary education loans until 2025.

However, there are a handful of states where forgiven loan balances may be taxable.Indiana,Minnesota,MississippijNorth Carolinahave confirmed that they will tax all student loan debt relief on their 2022 taxes. Some other states may do this as well, although the details are still being worked out.

And if you live in one of the states that tax student loans, you may also have to pay county taxes on your debt relief.

7. You must report your crypto and NFT transactions

While not technically new, the IRS is making a concerted effort through 2022 to track cryptocurrency sales and transactions. Each time you sell or trade your crypto, or buy an item using crypto, you trigger a taxable event. Cryptocurrencies are currently taxed like real estate, i.e. subject to short-term or long-term capital gains tax. It also means you can report crypto losses to offset gains. Since 2022 has seen the value of cryptocurrencies like Bitcoin and Ethereum plummet, you can reduce your tax bill by reporting your capital loss if you sold or traded your crypto at a loss. The same applies to NFTs.

And while the IRS flags all unreported crypto gains, the IRS won't adjust your yield on your behalf if you don't report a loss that could reduce your tax burden. "If you leave it out, it stays out," Steber said. “Tax-deductible losses from your virtual currency activities have a real impact on your taxes and can save you real dollars. That's why I always tell people if they have something they don't fully understand, look it up.” Advice from a trained and experienced tax professional.

If you have a lot of crypto or NFT activity, we recommend speaking to a tax professional. But if you prefer to do your taxes yourself, check out oursBest Crypto Control Software Optionsto make the tax return a little easier.

8. PayPal, Venmo, and other third-party apps report your payments to the IRS

If you've been self-employed or self-employed for a few years, you probably already know that you need to report your self-employment earnings to the IRS. This year, it's going to be even easier for the IRS to access your earnings as third-party payment apps now report your payment activity to the IRS.

While you still need to report your earnings as you normally would, the difference is that the IRS can compare the amounts you report to the transactions provided by the payment apps. So if you have a $100 difference, the IRS will know about it.

This new regulation could help the self-employed. Platforms like PayPal, Venmo, Cash App, Cell and others offer usersForms 1099-K,which may make reporting your income a little easier.

And don't worry, the money you gave to your kids is tax-proof. Only earnings sent through these third party applications are taxable.

Regardless of how you got paid, if you had self-employment income in 2022, Steber recommends working with a tax professional to make sure you're taking advantage of any applicable tax breaks. "Self-employed people have some of the most complex tax returns, and frankly some of these lucrative tax breaks in the tax code have to be careful," he said.

9. Increase in pension contribution limits

By 2022 manIncreased 401(k) contribution limitto $20,500, an increase of $1,000 from 2021. If you are over 50, you can donate an additional $6,500. The total contribution limit, which includes contributions from your employer, is $61,000 for 2022 ($67,500 for those age 50 and older). IRA contributions remained unchanged at $6,000 for the year, with an additional $1,000 catch-up contribution for those age 50 and older.

Reviews on SIMPLE IRA accountsalso increased in 2022, rising from $13,500 to $14,000. Those over 50 can donate an additional $3,000.

The end of the year is getting closerMaximize your retirement contributionsbefore the end of December. However, if you have an IRA, you can continue to contribute for the 2022 tax year until April 18, 2023, next year's tax return deadline.

more Americanseligible for a savings loanthis year as the IRS raised the income thresholds for 2022. It's worth up to $1,000 for single taxpayers ($2,000 for married and joint taxpayers) as long as you contribute to a retirement account and meet the AGI requirements. For that tax year, your AGI cannot exceed $34,000 for single and married taxpayers filing separate tax returns, $68,000 for married and joint taxpayers, and $51,000 for head of household taxpayers.

10. Temporary deductions for charitable donations have ended

Fewer taxpayers might be able to do thatEligible for tax credits for charitable donationsfor this financial year. The enhanced charitable cash offerings offered in 2020 and 2021 have ended. The temporary suspension of the 60% AGI limit in 2020 and 2021 is back, limiting the amount you can claim as charitable donations.

More tax tips

  • Maximize Your Tax Refund 2023: Year-End Tax Checklist
  • All Homeowner Tax Breaks for 2022: How to Maximize Your Tax Refund
  • Forgive student loans? You may owe taxes on your debt relief
  • Charity at checkout? Skip the store donations to save money on your taxes
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