HIGHLIGHTS OF 2023 TAX LAWS FOR INDIVIDUALS

Tax Brackets and Tax Rates

There are seven tax rates: 10%, 12%, 22%, 24%, 32%, 35% and 37%.

The long-term capital gains rates are 0%, 15%, and 20%.

Standard Deduction

 Married filing jointly $27,700

Head of Household $20,800

Single $13,850

Married filing separately $13,850

Additional amount if over age 65, blind or disabled

$1,850 – Unmarried individuals

$1,500 – Each spouse meeting criterion

Personal Exemptions

The personal exemption is repealed.

Child Tax Credit

For 2022, the child tax credit (CTC) is $2,000 per qualifying child (under age 17) and has a refundable component or the additional child tax credit (ACTC) of up to $1,600, subject to MAGI limitations. To be eligible for the CTC, each qualifying child claimed on the tax return must have a Social Security number. The CTC is also available for MFS returns. In the case of divorced or separated parents, if the child is the qualifying child of the noncustodial parent under the rules for children of divorced or separated parents, only the noncustodial parent can claim the CTC for that child. AGI phaseouts for the CTC begin with MAGI of more than $200,000 ($400,000 MFJ). Note that the age limit for a qualifying child is under the age of 17 at the end of the tax year.

Dependents not eligible for the CTC may be eligible for the other dependent credit (ODC) of $500. Dependents qualifying for the ODC include qualifying children age 17 and older, dependents without a SSN, or qualifying relatives.

Dependent Care Expenses

For 2023, the child and dependent care credit is a nonrefundable credit and the eligible expenses are $3,000 for one eligible dependent and $6,000 for two or more eligible dependents.

Energy Credits for the Home

For 2023, there is a new energy credit, the energy efficient home improvement credit. For property placed in service in 2023, the credit is 30% of the sum of the amount paid or incurred by the taxpayer for qualified energy improvements installed during the year. The lifetime maximum credit of $500 is changed to an annual limit of $1,200 with certain property limitations. In addition, there are separate annual limits of $600 for credits for windows and skylights, and $250 for exterior doors ( with a total of $500 for all exterior doors). A $2,000 annual limit applies to amounts paid for specified heat pumps, heat pump water heaters, and biomass stoves and boilers. Energystar.gov is a good site to see if your purchase qualifies for the credit.

These credits are also available for a second home.

Energy Credits for Clean Vehicles

The new tax law replaced the qualified plug-in electric drive motor vehicle credit with what is called the clean vehicle credit (CVC). While both credits are intended to give U.S. motor vehicle buyers an incentive to purchase an EV, the new credit places additional restrictions on who qualifies and which purchases are eligible.

The new CVC credit can be claimed from Jan. 1, 2023, until Dec. 31, 2032.

Taxpayers must meet income guidelines to claim the credit on EV purchases. Households with a modified adjusted gross income of up to $300,000 (MFJ, QW) ,$225,000 (HOH) or $150,000 (all others) qualify for the credit.

Only battery powered cars manufactured in North America with a manufacturer’s suggested retail price (MSRP) below $55,000 are eligible for the credit. Vans, SUVs and trucks that have an MSRP of up to $80,000 are also eligible.

Additionally, for 2023 a vehicle must have a battery that was manufactured in North America and constructed of at least 40% with materials that are either manufactured or sourced in the U.S. or in countries with a free trade agreement with the U.S. That amount increases by 10% each year until it reaches 100% for 2029. The value of the components contained in a battery must be 50% for vehicles purchased in 2023 with that number rising to 100% by 2028.

It should be noted that the MSRPs of many of the EVs sold in the U.S. do not currently qualify for the CVC because they are either too expensive or do not use enough U.S.-sourced materials in their batteries. Consumer Reports has published a list of EVs that currently do and do not qualify for the credit based on MSRP. However, the publication notes that it could not determine which of those vehicles had batteries that qualified for the CVC. The IRA of 2022 states that the government must develop guidance on battery requirements by the end of 2022.

Plug-in hybrid EVs will qualify for the CVC if they meet the above-listed requirements for plug-in eligibility and are equipped with a battery with more than 7 kilowatts of capacity.

For vehicles eligible for the CVC, $3,750 of the credit amount is based on the fact the battery was manufactured in North America. The remaining $3,750 of the credit is based on the battery meeting the sourcing requirements (40% of materials from the U.S. in 2023 and 50% of component value).

Taxpayers who lease eligible EVs can’t claim the CVC.

There is also a credit for previously owned clean vehicles purchased after Dec. 31, 2022, and before Jan. 1, 2033.

The Department of Transportation has a tool on its website where you can enter the vehicle identification number of the EV you’re interested in buying to determine its eligibility for the credit (https:/afdc.energy.gov/laws/electric-vehicles-for-tax-credit). The IRS also has information on its website regarding the EV credits.

Identity Protection PIN

The IRS Identity Protection PIN (IP PIN) Opt-In Program has been expanded to all taxpayers who can properly verify their identity. An IP PIN helps prevent your social security number from being used to file a fraudulent federal income tax return. You can use the Get An IP PIN tool on www.irs.gov to request an IP PIN.

IRS Online Account

An Online account is an online system that allows you to securely access your individual account information. You can view various documents including your payment history, your economic impact payments, and key information from your most recent tax return. You can also use it to make a payment online, access your tax records via Get Transcript, and approve or reject authorization requests from me to access your information. You can go to the IRS website, www.irs.gov, and click on Sign in to your account, to set it up.

Form 1099-K

Third-party settlement orgainizations such as Venmo and Paypal, will not be required to report tax year 2023 transactions on a Form 1099-K to the IRS or to the payee for the lower $600 threshold amount enacted as part of the American Resuce Plan of 2021.

Retirement changes for 2023

At the end of December, Congress passed a bill making changes to the retirement system. Effective for 2023, taxpayers are required to start taking required minimum distributions (RMDs) by April 1 of the calendar year following the year in which the individual reaches 73. However, it is generally better to take the distribution in the year you turn 73 so that two RMDs do not have to be taken in the next year.