Tax Update – January 2023
Changes in Tax Law for Current Season (at a glance)
- Child Tax Credit has been reduced, back down to $2K (from $3K) per child
- Gift Tax for 2023 increases to $17K
- Mortgage insurance (on Schedule A) is no longer deductible
- $300/$600 deduction for charitable contributions (now only on Schedule A)
- Expect more IRS guidance regarding virtual currency gains and activity
- 1099-K rules are now in effect – there is a $600 threshold and no transaction limit; furthermore, there is NO aggregation of transactions (this typically applies to ticket sales)
- Inherited IRAs – proposed regulations: 50% penalty for failure to withdraw; 10 year time-to-liquidate; also includes Roth IRAs
Inflation Reduction Act
The IRS team is working on the report requested by Secretary Yellen, which is already over 100 pages long, incorporating much of the materials from the Taxpayer First Act. In addition, the IRS recently began an initiative, and several meetings, to gain input from practitioners and diverse groups for the implementation of the Act and product development.
Reasons NOT To Get a Paper Refund Check
There is an agency-wide priority within the U.S. Treasury to reduce the number of paper checks issued. 11 million returns still have paper checks! Some are simply requested by taxpayers. Electronic deposit is not only faster, but also safer, for initially filed returns, not amended returns. The goal is for 99% of payments to be electronic by 2030. Of the 11 million total ‘returns’, there are 26M ‘paper checks’ (including paper filed returns). Often, the taxpayer pays fees in order to cash their checks if they do not have a standard bank account. Paper checks are more likely to be manipulated or compromised. Furthermore, there are currently 10 million treasury checks that have not been cashed, a large portion of those which are under $50. To summarize, the IRS is asking preparers to help promote direct deposit of refunds and to ask taxpayers to have their banking information available. Beginning in processing year 2023, taxpayers are now able to request direct deposit on electronically filed amended returns for tax year 2021 and 2022.
EITC Awareness Day
EITC Awareness Day occurred on January 27th. Why is this important? The IRS estimates four of five eligible taxpayers claim and get the EITC. They stress that EITC, combined with the CTC/ACTC/ODC, is a financial boost for working people and the local economy—and also reduces poverty for working families. The Center on Budget and Policy Priorities asserts that in 2018 the Child Tax Credit and EITC together lifted more children above the poverty line, 5.5 million, than any other economic support program. The American Rescue Plan Act, by making a significant set of changes to the Child Tax Credit, will lift another 4.1 million children above the poverty line, cutting the number of children in poverty by more than 40 percent.
31 million tax returns with EITC requests resulted in $54 billion in refunds. Unfortunately, 20% of those eligible for EITC don’t claim it. During the filing season, take a few minutes to see if someone would be eligible this year, or back to 2020, including those without filing requirements. The limit for Married Filing Jointly taxpayers with three children is nearly $60K; those families would get nearly $7K of EITC. EITC refunds will begin in mid-February and should be in banks by the end of February.
Other News: New Director of Return Preparer Office
Kimberly D. Rogers is the new Director of the RPO. She has been with the IRS since 1988 as a clerk in Chicago. In 2010, she joined the team now known as the Return Preparer Office (RPO). Prior to and subsequent to 2010, she has worked in various areas within the IRS.
Please watch for the next NCCPAP Tax Update in January and have a wonderful holiday season.