How To Avoid Venmo Tax Issues 2023

How To Avoid Venmo Tax Issues 2023

How To Avoid Venmo Tax Issues 2023 

There’s been lingering confusion about tax reporting for peer-to-peer payment apps such as Venmo and PayPal.

Here is what you need to know:

  • Personal P2P payments between friends and family still won’t be taxable, according to the IRS.
  • On the contrary, if you are using a Venmo business account or a Paypal business account, you may be held accountable for the taxes due on these transactions. Continue reading for a guide!

Business Accounts:

Starting this tax year, such companies must use a new, lower threshold when issuing tax forms to individuals who make business transactions through those platforms. The tax-year 2023 threshold is just $600 for even a single transfer, down from more than 200 transactions worth an aggregate above $20,000.

As a result of the change, more taxpayers are likely to receive Form 1099-K, which reports third-party business payments to the IRS.

For any business, it’s important to keep detailed records of the costs related to the production of income. This includes any payments made through P2P platforms, as well as other business expenses — another issue P2P app users face.

For IRS purposes, using a P2P payment platform is similar to paying cash, which the IRS considers to be an unsubstantiated transaction. Business owners need to have additional documentation — such as invoices, receipts, or expense reports — to support the business purpose of payments made through a P2P platform.

For example, a business might pay its janitorial crew through Venmo for legitimate office cleaning expenses. But for IRS purposes, a Venmo time-stamped transaction alone does not supply sufficient information to substantiate a business expense.

  • If you pay business expenses with Venmo, PayPal, or another P2P platform, make sure you have an invoice from your contractor or get a receipt from the vendor.
  • This documentation should include the amount paid and a description of the business expense.
  • This will ensure that you have the right backup information for your deductions if the IRS ever questions the legitimacy of your expense.

Keep in mind, as a business-owner, any payments made to you through a P2P app are still subject to IRS Form 1099  reporting rules and will need to be properly accounted for.   From the IRS’s perspective, business income collected through a P2P app is no different from any other transaction that goes through a traditional bank account. Businesses are still required to report any payments received through Venmo and PayPal as taxable income when filing taxes.

 

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IRS announces Tax Relief deadline for 3 States

IR-2023-174, Sept. 19, 2023

WASHINGTON — The Internal Revenue Service today reminded individuals and businesses in most of California and parts of Alabama and Georgia that their 2022 federal income tax returns and tax payments are due on Monday, Oct. 16, 2023. The normal due date of April 18 was postponed for many residents of these states in the wake of natural disasters earlier this year.

The IRS normally provides relief, including postponing various tax filing and payment deadlines, for any area designated by the Federal Emergency Management Agency (FEMA). As long as their address of record is in a disaster-area locality, individual and business taxpayers automatically get the extra time, without having to ask for it.

What areas qualify for the Oct. 16 deadline?

  • Thirteen counties in Alabama due to severe storms, straight-line winds and tornadoes starting on Jan. 12. The disaster area includes Autauga, Barbour, Chambers, Conecuh, Coosa, Dallas, Elmore, Greene, Hale, Mobile, Morgan, Sumter and Tallapoosa counties.
  • Fifty-five of California’s 58 counties—all except Lassen, Modoc and Shasta counties. IRS relief is based on three different FEMA disaster declarations covering various jurisdictions and event time frames.
  • Nine counties in Georgia due to severe storms, straight-line winds and tornadoes beginning on Jan. 12. The disaster area includes Butts, Crisp, Henry, Jasper, Meriwether, Newton, Pike, Spalding and Troup counties.

The current list of eligible localities is always available on the disaster relief page on IRS.gov.

What returns and payments qualify for the Oct. 16 deadline?

Eligible returns and payments include:

  • 2022 individual income tax returns and payments normally due on April 18.
  • For eligible taxpayers, 2022 contributions to IRAs and health savings accounts.
  • Quarterly estimated tax payments normally due on April 18, June 15 and Sept. 15.
  • Calendar-year 2022 partnership and S corporation returns normally due on March 15.
  • Calendar-year 2022 corporate and fiduciary income tax returns and payments normally due on April 18.
  • Quarterly payroll and excise tax returns normally due on May 1 and July 31.
  • Calendar-year 2022 returns filed by tax-exempt organizations normally due on May 15.

Other returns, payments and time-sensitive tax-related actions also qualify for the extra time. See the IRS disaster relief page for details.

For those planning ahead, is relief available for Hurricane Idalia and the Hawaii wildfires?

Yes, but primarily for individuals and businesses who already requested extensions to file their 2022 returns. In general, these taxpayers now have until Feb. 15, 2024, to file. As a reminder, this is more time to file, not to pay. Details vary but currently, relief is available to:

Other relief

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting with relief activities who are affiliated with a recognized government or philanthropic organization.

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2023 return normally filed in early 2024), or the return for the prior year (that is, the 2022 return normally filed in 2023). See Publication 547 for details.

The tax relief is part of a coordinated federal response to the damage caused by these disasters and is based on local damage assessments by FEMA. For information on disaster recovery, visit DisasterAssistance.gov.

2023 Educator Expense Deduction

2023 Educator Expense Deduction

IR-2023-150, Aug. 17, 2023

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WASHINGTON – As the new school year begins, the Internal Revenue Service reminds teachers and other educators that they’ll be able to deduct up to $300 of out-of-pocket classroom expenses for 2023 when they file their federal income tax return next year.

This is the same limit that applied in 2022, the first year this provision became subject to inflation adjustment. Before that, the limit was $250. The limit will rise in $50 increments in future years based on inflation adjustments.

This means that the 2023 Educator Expense Deduction is up to $300. If they’re married and file a joint return with another eligible educator, the limit rises to $600. But in this situation, not more than $300 for each spouse.

Who qualifies?

Educators can claim this deduction, even if they take the standard deduction. Eligible educators include anyone who is a kindergarten through grade 12 teacher, instructor, counselor, principal or aide who worked in a school for at least 900 hours during the school year. Both public and private school educators qualify.

What’s deductible?

Educators can deduct the unreimbursed cost of:

  • Books, supplies and other materials used in the classroom.
  • Equipment, including computer equipment, software and services.
  • COVID-19 protective items to stop the spread of the disease in the classroom. This includes face masks, disinfectant for use against COVID-19, hand soap, hand sanitizer, disposable gloves, tape, paint or chalk to guide social distancing, physical barriers, such as clear plexiglass, air purifiers and other items recommended by the Centers for Disease Control and Prevention.
  • Professional development courses related to the curriculum they teach or the students they teach. But the IRS cautions that, for these expenses, it may be more beneficial to claim another educational tax benefit, especially the lifetime learning credit. For details, see Publication 970, Tax Benefits for Education, particularly Chapter 3.

Qualified expenses don’t include the cost of home schooling or for nonathletic supplies for courses in health or physical education. As with all deductions and credits, the IRS reminds educators to keep good records, including receipts, cancelled checks and other documentation.

For 2022 tax returns being filed now: Don’t forget to claim educator expenses

For those who received a tax filing extension, qualify for a disaster extension, or for any other reason are still working on their 2022 return, the IRS reminds educators that the rules for claiming the deduction are the same as they are for 2023. For those who obtained an extension, the filing deadline is Oct. 16, 2023. But taxpayers can avoid processing delays by filing before that date.

File electronically when ready. Tax-filing software uses a question-and-answer format that makes doing taxes easier. Whether a return is self-prepared or prepared with the assistance of a tax professional or trained community volunteer, the IRS urges everyone to file electronically and choose direct deposit for refunds. For details, visit IRS.gov/efile.

In addition, the IRS urges anyone who owes taxes to choose the speed and convenience of paying electronically, such as with IRS Direct Pay, a free service available only on IRS.gov. For information about this and other payment options, visit IRS.gov/payments.

 

2023 Educator Expense Deduction

Tax Guidance For Religious Exemptions, Hardship Waivers, and others.

Tax Guidance For Religious Exemptions, Hardship Waivers, and others.

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The IRS issued Notice 2023-60 on Friday, providing Tax Guidance For Religious Exemptions, Hardship Waivers, and other administrative exemptions provided by the IRS, from electronic filing requirements included in final regulations (T.D. 9972) issued in February.

The final regulations reflected changes made by the Taxpayer First Act, P.L. 116-25, intended to increase electronic filing. They generally require persons filing partnership returns, corporate income tax returns, unrelated business income tax returns, withholding tax returns, certain information returns, registration statements, disclosure statements, notifications, actuarial reports, and certain excise tax returns to e-file those returns for tax years ending on or after Dec. 31, 2023.

The final regulations provided an administrative exemption from the electronic filing requirement for filers whose religious beliefs conflict with the requirement. In the most recent notice, the IRS said these filers should file Form 8508, Application for a Waiver from Electronic Filing of Information Returns, to notify the IRS in advance that they qualify for the exemption. Thereafter, filers who qualify for a religious exemption should file returns and other documents on paper in accordance with the applicable paper filing requirements, the IRS said.

T.D. 9972 also authorized the IRS commissioner to grant hardship waivers and to grant other administrative exemptions “to promote effective and efficient tax administration.” The procedure for seeking the waiver and any additional administrative exemptions provided by the IRS — is or will be available in applicable IRS revenue procedures, publications, forms, instructions, or other guidance, including postings on irs.gov.

Notice 2023-60 also obsoletes Notice 2010-13, Form 1120, Form 1120-F, Form 1120S, Form 990, and Form 990-PF Electronic Filing Waiver Request Procedures, which provided guidance on obtaining administrative exemptions for those forms because the new notice makes the previous one unnecessary, the Service said.

Tax Guidance For Religious Exemptions, Hardship Waivers, and others – 2023

Section 45L Tax Credit (4 Things To Know)

Section 45L Tax Credit (4 Things To Know)

IRS: Builders of qualified new energy efficient homes might qualify for an expanded tax credit under Section 45L Tax Credit

IR-2023-142, Aug. 7, 2023

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WASHINGTON — The Internal Revenue Service reminds eligible contractors who build or substantially reconstruct qualified new energy efficient homes that they might qualify for a tax credit up to $5,000 per home with Section 45L Tax Credit.

The actual amount of the credit depends on eligibility requirements such as the type of home, the home’s energy efficiency and the date when someone buys or leases the home. This important credit was expanded as part of the Inflation Reduction Act of 2022.

Eligibility for builders and homes

To qualify, eligible contractors must construct or substantially reconstruct a qualified new energy efficient home. They also must own the home and have a basis in it during the construction, and they must sell or lease the home to a person for use as a residence.

The homes must also be specified categories of single-family (including manufactured) or multifamily homes under Energy Star programs, be located in the United States, and meet applicable energy saving requirements based on home type and acquisition date.

Requirements and credit amounts for 2023 and after

For homes acquired in 2023 through 2032, the credit amount ranges from $500 to $5,000, depending on the standards met, which include:

  • Energy Star program requirements
  • Zero energy ready home program requirements
  • Prevailing wage requirements

Requirements and credit amounts before 2023

For homes acquired before 2023, the credit amount is $1,000 or $2,000, depending on the standards met, which include:

  • Certifying that the home has an annual level of heating and cooling energy consumption that is at least 50% (or 30% for certain manufactured homes) less than that of a comparable home that meets certain energy standards, with building envelope component improvements accounting for at least 1/5 (or 1/3 for certain manufactured homes) of the reduction
  • Meeting certain federal manufactured home rules
  • Meeting certain Energy Star requirements

Properly claiming the credit

Eligible contractors must meet all requirements under Internal Revenue Code Section 45L prior to claiming the credit. Guidance interpreting Section 45L may be found in Notice 2008-35 (and Notice 2008-36, for manufactured homes).

Use Form 8908, Energy Efficient Home Credit, to claim the Section 45L credit. If the source to claim the credit is from a partnership or S corporation, eligible contractors should use Form 3800, General Business Credit.

The IRS encourages eligible contractors to practice good recordkeeping of all documents required to support a claim for the Section 45L credit.

Other resources

48C Tax Credit 2023

48C Tax Credit 2023

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WASHINGTON — The Department of the Treasury and the Internal Revenue Service today issued Notice 2023-44PDF to provide more details for applicants seeking section 48C tax credit 2023 allocations in the qualifying advanced energy project credit allocation program under the Inflation Reduction Act.

On Feb. 13, 2023, the Treasury Department and the IRS issued Notice 2023-18 to establish the section 48C(e) program to allocate $10 billion in credits  not less than $4 billion of which will be allocated to projects located in certain energy communities census tracts. The notice also provided initial program guidance and announced that the Treasury Department and the IRS would issue additional program guidance by May 31, 2023. The guidance is primarily of interest to owners of clean energy manufacturing and recycling projects, greenhouse gas emission reduction projects, and critical material projects.

Notice 2023-44 updates the earlier version of Appendix A, defining qualifying advance energy projects, with clearer definitions and examples, and updates the earlier version of Appendix B, providing the Department of Energy application process, by adding technical review criteria and application content requirements. This notice also provides the process for submitting concept papers and joint applications for DOE recommendations and for IRS § 48C(e) certifications and clarifies the selection criteria used to evaluate whether a project merits a DOE recommendation.

Additionally, Notice 2023-44 defines the term “facility” for purposes of sections 45X and 48C, provides the procedure for informing DOE and IRS of a significant change to the project plan, includes information regarding the disclosure of certain information, and clarifies that eligible property that is placed in service before being awarded an allocation of section § 48C credits is ineligible for the § 48C(e) program. Finally, the guidance provides information regarding section 48C(e) energy communities census tracts, including new Appendix CPDF, which contains a list of those census tracts.

More information about IRA guidance may be found on the Inflation Reduction Act of 2022 page on IRS.gov.

How To Get A Tax Extension Easy!

How To Get A Tax Extension Easy!

 

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How To Get A Tax Extension Easy! – IRS Newsfeed 2023

WASHINGTON — As the tax deadline draws near, the Internal Revenue Service reminds taxpayers who need more time to file that getting an extension is quick and easy. An extension gives taxpayers an automatic six more months – until Oct. 16 this year – to file their tax return.

One of the easiest ways to get an extension is by using the IRS Free File program.

While an extension allows for extra time to gather, prepare and file paperwork, it’s important to remember that an extension of time to file taxes is not an extension of time to pay.

Taxpayers who owe taxes should pay their entire obligation, or as much as they can, by the normal deadline to avoid penalties and interest. The deadline this year is April 18 because the regular date of April 15 falls on a weekend, followed by a holiday in the District of Columbia.

Use IRS Free File to get an extension online

A quick and easy way to get an extension is through IRS Free File on IRS.gov. All individual tax filers, regardless of income, can electronically request an extension on Form 4868PDF by using the IRS Free File program partner software on IRS.gov. To get the extension, taxpayers must estimate their tax liability on this form and file it by April 18.

Get an extension when making a payment

Other fast, free and easy ways to get an extension include using IRS Direct Pay, the Electronic Federal Tax Payment System or by paying with a credit or debit card or digital wallet. There’s no need to file a separate Form 4868 extension request when making an electronic payment and indicating it’s for an extension. The IRS will automatically count it as an extension.

Important reminders

The IRS reminds taxpayers that payments are still due by the original deadline even if they request an extension of time to file a tax return. Taxpayers should file even if they can’t pay the full amount.

By filing either a return on time or requesting an extension by the April 18 filing deadline, they’ll avoid the late-filing penalty, which can be 10 times as costly as the penalty for not paying.

Taxpayers who pay as much as they can by the due date, reduce the overall amount subject to penalty and interest charges. The interest rate for an individual’s unpaid taxes is currently 7%, compounded daily. The late-filing penalty is generally 5% per month and the late-payment penalty is normally 0.5% per month, both of which max out at 25%.

The IRS will work with taxpayers who cannot pay the full amount of tax they owe. Other options to pay, such as getting a loan or paying by credit card, may help resolve a tax debt. Most people can set up a payment plan on IRS.gov to pay off their balance over time.

Some taxpayers get automatic extensions

Certain eligible taxpayers get more time to file without having to ask for extensions:

  • U.S. citizens and resident aliens who live and work outside of the United States and Puerto Rico get an automatic two-month extension to file their tax returns. They have until June 15 to file. However, tax payments are still due April 18 or interest will be charged.
  • Members of the military on duty outside the United States and Puerto Rico also receive an automatic two-month extension to file. Those serving in combat zones have up to 180 days after they leave the combat zone to file returns and pay any taxes due. Details are available in Publication 3, Armed Forces’ Tax GuidePDF.
  • When the U.S. president makes a disaster area declaration, the IRS can postpone certain taxpayer deadlines for residents and businesses in the affected area. Taxpayers in certain disaster areas do not need to submit an extension electronically or on paper. People can find information on the most recent tax relief for disaster situations on the Extension of Time To File Your Tax Return page.

12 Tax Write Offs for 2022

12 Tax Write Offs for 2022

Interested in saving some money this tax year? Here are 12 Tax Write Offs for 2022 :

As always, Contact ATS Advisors with any questions!

Taxpayers may be able to take advantage of numerous deductions and credits on their taxes each year that can help them pay a lower amount of taxes—or receive a refund from the IRS.

You may be able to write off the following twelve common write-offs, which include both tax credits and deductions. Additionally, you may be entitled to write-offs on your state taxes, so check your state tax department’s website to see if you qualify.

1. Property Taxes

Property taxes may be deductible if you itemize, but a limit comes into play.

Under a massive tax overhaul that was signed into law in 2017, deductible state and local income taxes (SALT), including property taxes, are capped at $10,000.

The limit is scheduled to last through the 2025 tax year, unless Congress extends it.

2. Mortgage Interest

The interest you pay for your mortgage can be deducted from your taxes. The write-off is limited to interest on up to $750,000 ($375,000 for married-filing-separately taxpayers) of mortgage debt incurred after Dec. 15, 2017.

3. State Taxes Paid

Again, you can deduct state income taxes that are paid, but the write-off is limited to up to $10,000, which includes all deductible state and local taxes.

4. Homeowner Deductions

You can deduct mortgage insurance premiums, mortgage interest and real estate taxes that you pay during the year for your home.

5. Charitable Contributions

Generally, you can deduct charitable contributions of cash totaling up to 60% of your adjusted gross income, or AGI. Donations of items or property also are considered deductible charitable contributions.

6. Medical Expenses

Medical and dental expenses qualify for a tax deduction, though you can deduct only the costs that exceed 7.5% of your AGI.

To claim medical-related expenses on your 2022 tax return next year, they must have been paid in 2022, unless they were charged to a credit card. In those cases, you can deduct the expenses in the year you charged the card, not necessarily the year in which you repaid them.

Trips to your doctor’s office or hospital appointments qualify for medical mileage. For 2022, you can deduct 18 cents a mile for travel you made for medical purposes through June 2022. The amount has increased to 22 cents a mile from July 1, 2022, through the end of the year.

7. Lifetime Learning Credit Education Credits

The lifetime learning credit allows people to claim a tax credit for taking classes at a community college, university or other higher education institution. The maximum amount of expenses you can deduct is up to $10,000 for an unlimited number of years. However, the top credit you can receive per tax return is worth $2,000.

The credit allows for a dollar-for-dollar reduction on the amount of taxes owed. The expenses can include tuition, fee payments and required books or supplies for post-secondary education for yourself, spouse or dependent child. The credit isn’t refundable, which means it can be used to pay any taxes you owe, but you can’t receive any of it as a refund.

The amount of your credit depends on your income. You should check IRS Publication 170 to determine the income qualifications.

Note: This credit can’t be claimed in the same year as the American opportunity tax credit using the same expenses.

8. American Opportunity Tax Education Credit

The American opportunity tax credit offers a tax break for the first four years of higher education. The maximum annual credit is $2,500 per eligible student. If the amount of taxes you owe is zero because of this credit, the IRS says 40% of any remaining amount of the credit (a maximum of $1,000) can be refunded to you.

The credit is worth 100% of the first $2,000 of qualified education expenses paid for each eligible student and 25% of the next $2,000 of qualified education expenses.

“If you, your spouse, or child are in school, make sure to look deeper into education credits,” says Daniel Fan, managing director and head of wealth planning at First Foundation Advisors, an Irvine, California-based financial institution. “For students who are in the first four years of college, this credit could provide greater tax savings than the lifetime learning credit.”

Qualifying expenses include tuition, fee payments and required books or supplies for post-secondary education for yourself, spouse or dependent child.

The amount of your credit is determined by your income. This credit can’t be claimed the same year the lifetime learning credit is claimed.

9. Retirement Credits

The contributions you make to a retirement plan such as a 401(k) or a traditional or Roth IRA give you a tax credit of 50%, 20% or 10%, depending on your adjusted gross income that you report on Form 1040. Any rollover contributions do not qualify for the credit.

The maximum contribution amount that qualifies for the credit is $2,000 ($4,000 if married filing jointly), making the maximum possible credit $1,000 ($2,000 if married filing jointly). The IRS has a chart to help calculate your credit.

10. IRA Contributions

The maximum contribution for 2022 in a traditional or Roth IRA is $6,000, plus another $1,000 for people who are 50 years old or more. Your contributions to a traditional IRA are tax-deductible.

11. Self-Employed Health Care Premiums

If you’re self-employed, you can deduct 100% of the health insurance premiums you pay monthly for yourself, your spouse and your dependents, whether or not you itemize deductions, says Robert Charron, a CPA in charge of the tax department at Friedman, a New York-based accounting firm.

If you have kids under 27 at the end of 2022, you can also deduct their premiums—even if they aren’t dependents.

However, you can’t claim this deduction if you’re eligible to participate in a subsidized health plan from an employer for either yourself, your spouse, dependents or kids under 27.

12. Student Loan Interest

Student loan interest can be written off your taxes, but the maximum interest you can deduct is $2,500. The amount you may write off depends on your income. Review the previously mentioned IRS Publication 970 for more information.

So thats it! There are 12 Tax Write Offs for 2022 that you can use to your advantage.

What Is the Standard Deduction?

The standard deduction is an automatic deduction from your taxable income that you can receive without any itemizing.

Before deciding to claim the standard deduction, it’s a good idea to compare your standard deduction amount with your total itemized deductions.

For the 2022 tax year (meaning the taxes you’ll file in 2023), the standard deduction amounts are: :

  • $12,950 for single and married filing separate taxpayers
  • $19,400 for head of household taxpayers
  • $25,900 for married taxpayers filing jointly or qualifying widow(er)s

Tips for Writing Off Your Expenses and Charitable Contributions

Keeping a good record of your income and deductible expenses in a spreadsheet throughout the year can make filing taxes a lot quicker and easier.

“Preparing and organizing everything for your taxes can seem like a daunting task, but a lot of people come across the same common mistakes,” Fan says. “Don’t forget to always include all sources of income, make sure you are looking for and including all possible deductions, and understand the difference between a deduction and a credit.”

Some common mistakes people make include:

  • Not listing all income
  • Not accounting for all possible deductions
  • Not taking advantage of contributions to retirement accounts to increase tax-deductible contributions.

If you are filing taxes with several deductions, start by gathering all the appropriate paperwork, such as Form 1098 for mortgage interest rate deductions. For other deductions, which are based on expenses or contributions, keep accurate records.

“If you itemize your deductions, then keep track of qualified medical expenses, charitable contributions made, or any other deductions which can be itemized,” says Fan. “If you are likely to take the standard deduction, then record keeping will not be as important.”

“12 Common Tax Write-Offs You Can Claim On Your Next Return” Sourced From FORBES, Ellen Chang

Tax Bracket 2022 Head of Household

Tax Bracket 2022 Head of Household

Tax Bracket 2022 Head of Household – Need Michigan Tax Help? Contact ATS Advisors today!

2022 Tax Rates and Brackets

When you’re working on your 2022 federal income tax return next year, here are the tax brackets and rates you’ll need based on your filing status:

Single Filers and Married Couples Filing Jointly
Tax Rate Taxable Income
(Single)
Taxable Income
(Married Filing Jointly)
10% Up to $10,275 Up to $20,550
12% $10,276 to $41,775 $20,551 to $83,550
22% $41,776 to $89,075 $83,551 to $178,150
24% $89,076 to $170,050 $178,151 to $340,100
32% $170,051 to $215,950 $340,101 to $431,900
35% $215,951 to $539,900 $431,901 to $647,850
37% Over $539,900 Over $647,850

 

Married Couples Filing Separately and Head-of-Household Filers
Tax Rate Taxable Income
(Married Filing Separately)
Taxable Income
(Head of Household)
10% Up to $10,275 Up to $14,650
12% $10,276 to $41,775 $14,651 to $55,900
22% $41,776 to $89,075 $55,901 to $89,050
24% $89,076 to $170,050 $89,051 to $170,050
32% $170,051 to $215,950 $170,051 to $215,950
35% $215,951 to $323,925 $215,951 to $539,900
37% Over $332,925 Over $539,900

2023 Tax Rates and Brackets

If you’re already thinking about how to handle your 2023 finances in a tax-efficient way — even though it’s still only 2022 – here are the 2023 federal income tax brackets and rates for the four most common filing statuses:

Single Filers and Married Couples Filing Jointly
Tax Rate Taxable Income
(Single)
Taxable Income
(Married Filing Jointly)
10% Up to $11,000 Up to $22,000
12% $11,001 to $44,725 $22,001 to $89,450
22% $44,726 to $95,375 $89,451 to $190,750
24% $95,376 to $182,100 $190,751 to $364,200
32% $182,101 to $231,250 $364,201 to $462,500
35% $231,251 to $578,125 $462,501 to $693,750
37% Over $578,125 Over $693,750

 

Married Couples Filing Separately and Head-of-Household Filers
Tax Rate Taxable Income
(Married Filing Separately)
Taxable Income
(Head of Household)
10% Up to $11,000 Up to $15,700
12% $11,001 to $44,725 $15,701 to $59,850
22% $44,726 to $95,375 $59,851 to $95,350
24% $95,376 to $182,100 $95,351 to $182,100
32% $182,101 to $231,250 $182,101 to $231,250
35% $231,251 to $346,875 $231,251 to $578,100
37% Over $346,875 Over $578,100

Inflation’s Impact on the 2023 Brackets

Since inflation has been high over the past year or so, the inflation adjustments impacted the tax brackets more this year than what we’re used to seeing. This shows up when we look at the “width” of the 2023 brackets and see that they got comparatively wider than before. (By width, we mean the amount of income taxed at the applicable rate – so the difference between the bracket’s lowest dollar amount and its highest dollar amount.

Take, for example, the 22% bracket for single taxpayers. For the 2021 tax year, the bracket ranged from $40,526 to $86,375 and covered $45,849 of taxable income ($86,375 – $40,526 = $45,849). For 2022, the 22% bracket for singles goes from $41,776 to $89,075 and covers $47,299 of taxable income ($89,075 – $41,776 = $47,299). So, from 2021 to 2022, the 22% bracket for single filers got $1,450 wider ($47,299 – $45,849 = $1,450).

For 2023, however, the width of the 22% singles bracket grew by more than twice as much. The 2023 bracket covers $50,649 of taxable income ($95,375 – $44,726 = $50,649), which is $3,350 wider than for 2022.

But that’s OK – wider tax brackets are a good thing, because it helps prevent “bracket creep.” When a bracket gets wider, there’s less of a chance that you’ll end up in a higher tax bracket if your income stays the same or doesn’t grow at the rate of inflation from one year to the next.

How the Tax Brackets Work

Suppose you’re single and end up with $100,000 of taxable income in 2022. Since $100,000 is in the 24% bracket for singles, will your 2022 tax bill simply a flat 24% of $100,000 – or $24,000? No! Your tax is actually less than that amount. That’s because, using marginal tax rates, only a portion of your income is taxed at the 24% rate. The rest of it is taxed at the 10%, 12%, and 22% rates.

Here’s how it works. Again, assuming you’re single with $100,000 taxable income in 2022, the first $10,275 of your income is taxed at the 10% rate for $1,028 of tax. The next $31,500 of income (the amount from $10,276 to $41,775) is taxed at the 12% rate for an additional $3,780 of tax. After that, the next $47,300 of your income (from $41,776 to $89,075) is taxed at the 22% rate for $10,406 of tax. That leaves only $10,925 of your taxable income (the amount over $89,075) that is taxed at the 24% rate, which comes to an additional $2,622 of tax. When you add it all up, your total 2022 tax is only $17,836. (That’s $6,164 less than if a flat 24% rate was applied to the entire $100,000.)

Now, suppose you’re a millionaire. (We can all dream, right?) If you’re single, only your 2022 income over $539,900 is taxed at the top rate (37%). The rest is taxed at lower rates as described above. So, for example, the tax on $1 million for a single person in 2022 is $332,955. That’s a lot of money, but it’s still $37,045 less than if the 37% rate were applied as a flat rate on the entire $1 million (which would result in a $370,000 tax bill).

Capital Gains Tax Rates

It’s important to note that the tax rates on capital gains from the sale of stocks, bonds, cryptocurrency, real estate, and other capital assets aren’t necessarily the same as the tax rates mentioned above for wages, interest, retirement account withdrawals, and other “ordinary” income. When determining the tax on capital gains, the rates that apply generally depend on how long you held the capital asset before selling it.

If you hold a capital asset for one year or less, any gain from the sale is considered short-term capital gain and taxed using the rates for ordinary income listed above. However, if you hold the asset for more than one year, the gain is treated as long-term capital gain and taxed a lower rate – either 0%, 15%, or 20%. As with the ordinary tax rates and brackets, which specific long-term capital gains tax rate applies depends on your taxable income. However, the long-term capital gain brackets are set up so that you’ll generally pay tax at a lower rate than if the ordinary tax rates and brackets were applied.

For more on the taxation of capital gains, see Capital Gains Tax 101.

States Sending Stimulus Checks

“What Are the Income Tax Brackets for 2022 vs. 2023?” – Mengle, Rocky. 2023. Kiplinger.com.

Tax Bracket 2022 Head of Household

EITC 2022 Qualifications

EITC 2022 Qualifications

Low- to moderate-income workers with qualifying children may be eligible to claim the Earned Income Tax Credit (EITC) if certain qualifying rules apply to them.

You may qualify for the EITC even if you can’t claim children on your tax return. Find out how to claim the EITC without a qualifying child.

Basic Qualifying Rules

To qualify for the EITC, you must:

Special Qualifying Rules

The EITC has special qualifying rules for:

If you’re unsure if you qualify for the EITC, use our Qualification Assistant.

Valid Social Security Number

To qualify for the EITC, everyone you claim on your taxes must have a valid Social Security number (SSN). To be valid, the SSN must be:

  • Valid for employment
  • Issued before the due date of the tax return you plan to claim (including extensions)

For the EITC, we accept a Social Security number on a Social Security card that has the words, “Valid for work with DHS authorization,” on it.

For the EITC, we don’t accept:

  • Individual taxpayer identification numbers (ITIN)
  • Adoption taxpayer identification numbers (ATIN)
  • Social Security numbers on Social Security cards that have the words, “Not Valid for Employment,” on them

For more information about the Social Security number rules for the EITC, see Rule 2 in Publication 596, Earned Income Credit.

Filing Status

In 2021, to qualify for the EITC, you can  use one of the following statuses:

You can claim the EIC if you are married, not filing a joint return, had a qualifying child who lived with you for more than half of 2021, and either of the following apply.

  • You lived apart from your spouse for the last 6 months of 2021, or
  • You are legally separated according to your state law under a written separation agreement or a decree of separate maintenance and you didn’t live in the same household as your spouse at the end of 2021.

If you’re unsure about your filing status, use our EITC Qualification Assistant or the Interactive Tax Assistant.

There are special rules if you or your spouse are a nonresident alien.

Head of Household

You may claim the Head of Household filing status if you’re not married and pay more than half the costs of keeping up your home where you live with your qualifying child.

Related: About Publication 501, Standard Deduction, and Filing Information.

Qualifying Widow or Widower

To file as a qualifying widow or widower, all the following must apply to you:

  • You could have filed a joint return with your spouse for the tax year they died. It does not matter if you filed a joint return.
  • Your spouse died less than 2 years before the tax year you’re claiming the EITC and you did not remarry before the end of that year
  • You paid more than half the cost of keeping up a home for the year
  • You have a child or stepchild you can claim as a relative. This does not include a foster child.
  • This child lived in your home all year, except for temporary absences. Note: There are exceptions for a child who was born or died during the year and for a kidnapped child. For more information, see Qualifying Child Rules, Residency.

Related:

Keeping up a Home

If you paid more than half the total cost to keep up a home during the tax year you file your taxes, you meet the requirement of paying more than half the cost of keeping up the home.

Costs include:

  • Rent, mortgage interest, real estate taxes and home insurance
  • Repairs and utilities
  • Food eaten in the home
  • Some costs paid with public assistance

Costs don’t include:

  • Money you got from Temporary Assistance for Needy Families or other public assistance programs
  • Clothing, education and vacations expenses
  • Medical treatment, medical insurance payments and prescription drugs
  • Life insurance
  • Transportation costs like insurance, lease payments or public transportation
  • Rental value of a home you own
  • Value of your services or those of a member of your household

U.S. Citizen or Resident Alien

To claim the EITC, you and your spouse (if filing jointly) must be U.S. citizens or resident aliens.

If you or your spouse were a nonresident alien for any part of the tax year, you can only claim the EITC if your filing status is married filing jointly and you or your spouse is a:

  • U.S. Citizen with a valid Social Security number or
  • Resident alien who was in the U.S. at least 6 months of the year you’re filing for and has a valid Social Security number

Claim the EITC Without a Qualifying Child

You are eligible to claim the EITC without a qualifying child if you meet all the following rules. You (and your spouse if you file a joint tax return) must:

  • Meet the EITC basic qualifying rules
  • Have your main home in the United States for more than half the tax year
    • The United States includes the 50 states, the District of Columbia and U.S. military bases. It does not include U.S. possessions such as Guam, the Virgin Islands or Puerto Rico
  • Not be claimed as a qualifying child on anyone else’s tax return
  • Be at least age 18 at the end of the tax year (usually Dec. 31)
    • The minimum age to claim the EIC is generally age 19; however, if you are a qualified former foster youth or a qualified homeless youth, you need to be at least age 18.
    • If you are a specified student (other than a qualified former foster youth or a qualified homeless youth), you need to be at least age 24.

When You Will Get Your Refund

The IRS expects most EITC/Additional CTC related refunds to be available in taxpayer bank accounts or on debit cards by March 1, if they chose direct deposit and there are no other issues with their tax return. However, some taxpayers may see their refunds a few days earlier. Check  Where’s My Refund? or the IRS2Go mobile app to check your refund status.

Other Credits You May Qualify For

If you qualify for the EITC, you may also qualify for other tax credits.

Questions? Contact ATS Advisors

Contact ATS