Tax Season: what you should consider when preparing your U.S. Tax Return in 2023

During this 2023 tax filing season, the American Internal Revenue Service (IRS) alerts taxpayers to the importance of visiting irs.gov, gathering the necessary information, and accessing the updated tools that can help when filing your Tax Return for 2022.

See below some recommendations before filling out the form:

  • Wait to receive all “key” tax documents before starting the tax return – this decreases the chances of filling errors that may cause delivery delays.
  • Carefully review all documents. If any information is missing or incorrect, the IRS guidance is for the declarant to immediately contact the employer, payer, or issuing agency and request the necessary corrections.
  • Create an online account on the IRS website. This facilitates the agency’s access to information regarding the taxpayer’s federal taxes, payments, and tax records.
  • Organize your tax records. Having this data organized makes it easier to fill out the form.
  • For non-US residents, check the validity of the ITIN (Individual Taxpayer Identification Number). Anyone who has an ITIN must renew it if it is expired and this information is requested on the federal tax return. Failure to renew may result in a delay in processing the tax return and receiving refunds.

Changes in deductions and credits in the tax year 2022

According to the IRS, unlike in 2020 and 2021, in 2022 there were no economic stimulus payments, so taxpayers will not receive additional amounts in their tax refund in 2023.

However, you can still access Premium Tax Credit, a refundable credit that helps individuals and families lower their health insurance premiums when they enroll in a plan through the Health Insurance Marketplace. According to the IRS, to get this benefit, taxpayers must meet certain requirements and file Form 8962, Premium Tax Credit.

It is essential to mention that some tax credits have returned to the same levels as in 2019, which should probably decrease the amounts refunded in 2023.

The Earned Income Tax Credit (EITC), the  Child Tax Credit (CTC)  and the Child and Dependent Care Credit are among those that have returned to pre-COVID-19 levels.

According to the IRS:

  • For the EITC, eligible taxpayers with no children who received roughly $1,500 in 2021 will now get $560 for the 2022 tax year.
  • Those who got $3,600 per dependent in 2021 for the CTC will, if eligible, get $2,000 per dependent for the 2022 tax year.
  • The Child and Dependent Care Credit returns to a maximum of $2,100 in 2022 instead of $8,000 in 2021.

Inflation adjustments for federal income tax rate schedules and increase in the contribution limit for 401(k) and IRA plans.

The IRS boosted tax brackets by about 7% for each type of tax filer for 2023 when compared to 2022. For updated brackets, go to this link.

Maximum contributions for the 401k have risen from $20,500 to 22,500 in 2022 and for the IRA from $6,000 to $6,500.

A transition year for Form 1099-K

There have been no changes in the calculation of tax or what is considered income, including gains arising from the sale of personal property. All income must be declared unless exempted by law.

To help increase voluntary compliance on returns, the IRS recommends filing Form 1099-K, Payment Card and Third-Party Network Transactions. This year, the latest date for beneficiaries to receive the form was January 31, 2023.

In 2021, the American Rescue Plan changed the maximum amount for statements from third-party settlement organizations, including payment apps and online settlement providers. The IRS establishes that the reporting threshold for these transactions is now $600 per year, down from $20.000 in previous years. Third-party settlement providers are required to report payments for goods and services.

On December 23, 2022, the IRS announced that the calendar year 2022 will be a transition period for the $600 reporting threshold. Even with the delay in the application of Form 1099-K, and lowered reporting threshold for third-party settlement providers, some individuals may still receive the Form if they did not receive it last year. This may happen for sales of personal items or in situations where the form was received by mistake (shared expenses by friends or family, for example).

Money received as a gift or to reimburse rent or shared meals should not be reported on Form 1099-K. It should be reported whether a payment is made to family and friends or a business transaction for goods and services.

If there is any incorrect information on Form 1099-K, the taxpayer must immediately contact the payer. You can find the payer’s name in the upper left corner of the form – the IRS recommends that the taxpayer keep a copy of all correspondence with the payer with their records.

If a Form 1099-K is received by mistake and/or a corrected Form 1099-K cannot be obtained, the IRS provides guidance on what to do on the website: Understanding your 1099-K form.

Questions about tax returns in the United States? Do not hesitate to contact Drummond Advisors through available chat or by email info@drummondadvisors.com.

Written by Aline Ribeiro, Senior Communications Consultant

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