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Tax Changes 2023

01
The Child Tax Credit Expansion Package
  • The Child Tax Credit expansion package is currently being voted on, and if approved, the changes will require only minor adjustments. The IRS has confirmed plans to make the necessary system updates. If Congress approves the package, the IRS will take care of everything automatically, and you won't need to file an amendment.
  • The Tax Relief for American Families and Workers Act of 2024 increases and modifies child tax credit provisions, increases depreciation allowances to promote economic innovation and growth, provides special rules for the taxation of residents of Taiwan with income from U.S. sources, increases tax relief provisions for losses due to natural disasters and wildfires, and increases the low-income housing tax credit.The legislation would expand the refundable portion of the child tax credits, helping lower income families, particularly parents with multiple children.
  • Requirements
    • Minimum of $2,500 in annual income.
    • The new calculation would multiply the parent's income by 15% as well as by the family's number of children.
    • Taxpayers could use their income from either the current or prior year in calculating the CTC.
    • Increased maximum refundable amount per child would rise to $1,800 in 2023, $1,900 in 2024 and $2,000 in 2025.
    • Single filers with adjusted gross incomes below $200,000 and joint filers with less than $400,000 can receive the full credit. The CTC amount is whittled down by $50 for every $1,000 above those thresholds.
02
To Qualify as a Dependent Child
  • The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. An adopted child is always treated as your own child. The term “adopted child” includes a child who was lawfully placed with you for legal adoption.
  • The child must be: (a) under age 19 at the end of the year and younger than you (or your spouse, if filing jointly), (b) under age 24 at the end of the year, a full- time student, and younger than you (or your spouse, if filing jointly), or (c) any age if permanently and totally disabled.
  • Lived with you for more than half the year.
  • Taxpayer must have provided more than half of the support.
Qualifying Relative Dependents
  • The gross income limitation for a qualified relative is under the filing threshold ($4,300) (If full-time students under the age of 24, the income can be higher).
  • Lives with or is related to you,
  • Is supported (generally more than 50%) by you, and
  • Is neither your qualifying child nor the qualifying child of anyone else.
  • Parents or guardians can still claim adult dependent children to benefit from educational credits. i.e. Bachelor's degree expenses include tuition, textbooks, supplies, hardware, and software. (Post-baccalaureate you can only claim Tuition)
  • If you are a dependent of another taxpayer you might still need to file. Check with your Tax Professional.
  • If you are a U.S. citizen or resident alien living or traveling outside the United States, you generally are required to file income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as those residing in the United States
(If full-time students under the age of 24, the income can be higher)
03
Daycare and Dependent Care Credit
  • For 2023, the credit for child and dependent care expenses is nonrefundable and there is a dollar limit on the amount of your work-related expenses you can use to figure the credit. This limit is $3,000 if you had one qualifying person, or $6,000 if you had two or more qualifying persons.
  • The maximum credit is 35% of your employment-related expenses. The more you earn the lower the percentage of employment-related expenses that are considered in determining the credit. The maximum credit is 20% of your employment-related expenses if adjusted gross income is over $43,000.
  • For 2023, you may only enter on Form 2441, line 13, amounts you carried over from 2022 and used in 2023 during the grace period. See the line 13 instructions for Form 2441.
04
Earned Income Credits
  • The tax year 2023 maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers who have three or more qualifying children, up from $6,935 for tax year 2022. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
05
Education Credits
  • The Lifetime Learning Credit is Not refundable. You can get up to $2,000 credit per return, can be used for unlimited years for all years of post-secondary education and for courses to acquire or improve job skills, and student does not need to be pursuing a degree or other recognized education credential. Student does not have to be full time. You can claim expenses related to tuition and fees required for enrollment or attendance only.
  • The American Opportunity Credit is 40% of credit (refundable) you can get up to $2,500 credit per eligible student, it is available for 4 tax years per eligible student (includes any years former Hope credit claimed) The student must be pursuing a degree or other recognized education credential, be enrolled at least half time for at least one academic period beginning in the current tax year. Students must have no felony drug convictions as of the end of the current tax year. You can claim expenses related toward tuition, required enrollment fees, and course materials needed for course of study.
  • To qualify for max education credits, modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly). You'll receive a reduced amount of the credit if your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing jointly). You cannot claim the credit if your MAGI is over $90,000 ($180,000 for joint filers). You cannot claim benefit if someone else can claim you as a dependent on their return and you do not qualify if married filing separately.
06
Adoption Credits
  • The maximum credit allowed for adoptions for tax year 2023 is the amount of qualified adoption expenses up to $15,950.
07
ACA Individual Mandate Penalty is imposed by States
  • No federal penalty
  • Some states have implemented their own individual mandates and associated penalties. (for example, in California, individuals without healthcare coverage for the year 2023 will have to pay a flat rate amount of $900 per adult and $425 per dependent child under 18 or 2.5% of the amount of gross income that exceeds the filing threshold requirements based on the tax filing status and number of dependents).
08
Educators
  • Maximum educator expense deduction rises to $300
09
Foreign Earned Income Exclusion
  • The foreign earned income exclusion is $120,000
10
Alternative Minimum
  • In 2023 the Alternative Minimum Tax exemption amount for tax year 2023 is $81,300 and begins to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption begins to phase out at $1,156,300, married filing separately exemption amount is $63,250 and begins to phase out at $578,150).
  • The AMT exemption amount for certain individuals under 24 equals their earned income plus $8,800
11
Gift Exclusion
  • The annual exclusion for gifts increases to $17,000 for calendar year 2023.
  • For tax years beginning in 2022, § 6039F authorizes the Treasury Department and the Internal Revenue Service to require recipients of gifts from certain foreign persons to report these gifts if the aggregate value of gifts received in the tax year exceeds $17,339
12
Earned Income Credit
  • The tax year 2023 maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers who have three or more qualifying children, up from $6,935 for tax year 2022. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
13
Standard Deduction
  • Singles and Married filing Separately $13,850
  • Married Filing Joint $27,700
  • Head of Household $20,800
For 2023, as in 2022, 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
14
California Residents
  • Federal law requires the Franchise Tax Board (FTB) to mail taxpayers who itemize and received a refund, or who received an interest payment of $10 or more, or who received a Middle-Class Tax Refund (MCTR) payment of $600 or more one or more of the following:
    • Form 1099-G, Report of State Income Tax Refund
    • Form 1099-Gs, will specify from which tax year the refund originated.
    • Form 1099-INT, Statement of Interest Income.
    • FTB issues Form 1099-INTs for all interest paid during the 2023 calendar year, regardless of tax year.
15
Tax Filing requirements
  • Most U.S citizens or permanent residents who work in the U.S have to file a tax return.
  • Generally, you must file if:
    • Your gross income is over the filling requirement.
    • You have over $400 in net earnings from self-employment (side jobs or other indeipendent work).
    • You had other situations that require you to file.
  • Generally, you must file a return if your gross income from worldwide sources is at least the amount shown for your filing status as follows:
    • Single $13,850
      • Age 65 and older: $15,700
    • Married filing Jointly: $27,700
      • One spouse is 65 and older: $29,200
      • Both spouses 65 and older: $30,700
    • Married Filing Separately: $5
    • Head of Household: $20,800
      • Age 65 and older: $22,650
    • Qualifying Widower: $27,700
      • 65 and older: $29,200
    • Independent Contractors
      • Net earnings from self-employment of at least $400
Note: Students under age 24 years of age, can file taxes completely independent or as a dependent.

  • You must file a return if any of the seven conditions below apply
    • Owe any special taxes, including any of the following.
      • Alternative minimum tax
      • Additional tax on a qualified plan, including an individual retirement arrangement (IRA), or other tax-favored account. But if you are filing a return only because you owe this tax, you can file Form 5329 by itself
      • Household employment taxes. But if you are filing a return only because you owe this tax, you can file Schedule H by itself
      • Social security and Medicare tax on tips you didn't report to your employer or on wages you received from an employer who didn't withhold these taxes
      • Write-in taxes, including uncollected social security and Medicare or RRTA tax on tips you reported to your employer or on group-term life insurance and additional taxes on health savings accounts. See the instructions for Schedule 2, line 8
      • Recapture taxes. See the instructions for line 16 and Schedule 2, lines 7b and 8
      • You (or your spouse, if filing jointly) received health savings account, Archer MSA, or Medicare Advantage MSA distributions
      • You had net earnings from self-employment of at least $400.
      • You had wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes
      • Advance payments of the premium tax credit were made for you, your spouse, or a dependent who enrolled in coverage through the Marketplace. You or whoever enrolled you should have received Form(s) 1095-A showing the amount of the advance payments
      • Advance payments of the health coverage tax credit were made for you, your spouse, or a dependent. You or whoever enrolled you should have received Form(s) 1099-H showing the amount of the advance payments
      • You are required to include amounts in income under section 965 or you have a net tax liability under section 965 that you are paying in installments under section 965(h) or deferred by making an election under section 965(i)

    If you are a U.S citizen or resident alien living or traveling outside the United States, you generally are required to file Income Tax returns, esttate tax returns, and gift tax returns and pay estimated tax in the same way the as those residing in the United States.
16
Dependent Tax Filing requirements
  • Single and under 65
    • Unearned income of: $1,250
    • Earned income $13,850
    • Gross income was more than the larger of
      • $1,250 or
      • Earned income (up to $13,450) plus $400
  • Single 65+
    • Unearned income of: $3,100 ($4,950 if 65 or older and blind)
    • Earned income $15,700 ($17,550 if 65 or older and blind).
    • Gross income was more than the larger of
      • $3,100 ($4,950 if 65 or older and blind)
      • Earned earned income (up to $13,450) plus $2,250 ($4,100 if 65 or older and blind
  • Married and under 65
    • Gross income was at least $5 and your spouse files a separate return and itemizes deductions
    • Unearned income was over $1,250
    • Earned income was over $13,850
    • Gross income was more than the larger of
      • $1,250, or
      • Earned income (up to $13,450) plus $4000.
  • Married 65+
    • Gross income was at least $5 and your spouse files a separate return and itemizes deductions.
    • Unearned income was over $2,750 ($4,250 if 65 or older and blind).
    • Earned income was over $15,350 ($16,850 if 65 or older and blind).
    • Gross income was more than the larger of
      • $2,750 ($4,250 if 65 or older and blind), or
      • Earned income (up to 13,450) plus $1,900 ($3,400 if 65 or older and blind).
17
Health Savings Accounts
  • For tax year 2023, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,650,; but not more than $3,950,. For self-only coverage, the maximum out-of-pocket expense amount is $5,300. For tax year 2023, for family coverage, the annual deductible is not less than $5,300; however, the deductible cannot be more than $7,900.For family coverage, the out-of-pocket expense limit is $9,650 for tax year 2023.
18
Health Savings Accounts and Other Tax-Favored Health Plans
  • For the taxable years beginning in 2023, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,050. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $610.
  • For 2023, if you have self-only HDHP coverage, you can contribute up to $3,850. If you have family HDHP cover- age, you can contribute up to $7,750.
19
Contributions to Retirement Accounts
  • HSA contributions
    • Self-only coverage: $3,850
    • Family coverage: $7,750
    • HSA catch-up contributions (age 55 or older): $1,000
  • 457
    • Limit: $22,500
    • Age 50 Catch-up Limit: $7,500
    • Pre-Retirement Catch-up limit: $22,500
  • 401 (a)
    • Limit: $61,000
  • 401 (k)
    • Limit: $22,500
    • Age 50 Catch-up Limit: $7,500
  • 403 (b)
    • Limit: $22,500
    • Age 50 Catch-up Limit: $7,500
    • Pre-Retirement Catch-up limit: $15,500 lifetime cap
  • IRA
    • Limit: $6,500
    • Age 50 Catch-up Limit: $1,000

2023 Income Tax Brackets

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2023 Federal Income Tax Brackets
Tax Rate Single Married, filing jointly Married, filing separately Head of Household
10% $0 to $11,000 $0 to $22,000 $0 to $11,000 $0 to $15,700
12% $11,001 to $44,725 $22,001 to $89,450 $11,001 to $44,725 $15,701 to $59,850
22% $44,726 to $95,375 $89,451 to $190,750 $44,726 to $95,375 $59,851 to $95,350
24% $95,376 to $182,100 $190,751 to $364,200 $95,376 to $182,100 $95,351 to $182,100
32% $182,101 to $231,250 $364,101 to $462,500 $182,101 to $231,250 $182,101 to $231,250
35% $231,251 to $578,125 $462,501 to $693,750 $231,251 to $346,875 $231,251 to $578,100
37% $578,126 or more $693,751 or more $346,876 or more $578,101 or more