Tax Changes to Know Before Filing Your 2023 Return

Just like taxes are one of the certainties in life, changes to tax rules also can be expected each year. Adjustments are made to take inflation into account and in response to new legislation.

These changes can have a big impact on how much you owe or how much of a refund you get. So it’s important to be aware of what to expect when filing your 2023 tax return.

The standard deduction for 2023 is higher

Thanks to an inflation adjustment, taxpayers who don’t itemize can claim a higher standard deduction for 2023. For single filers and married couples filing separately, the standard deduction is $13,850, up from $12,950 for 2022 tax returns.

For married couples filing jointly, the standard deduction is $27,700, up from $25,900. For taxpayers filing as head of household, the standard deduction is $20,800, up from $19,400.

Adults 65 and older or blind can take advantage of an extra standard deduction.

• Single adults 65 and older or blind can claim a standard deduction of $15,700; $17,550 if blind and 65 and older.
• Married couples filing jointly can claim a standard deduction of $29,200 if one spouse is 65 and older or blind; $30,700 if two spouses are 65 and older or blind; $32,200 if one spouse is 65-plus or blind and the other is 65-plus and blind; $33,700 if both spouses are 65-plus and blind.
• A qualifying surviving spouse can claim a standard deduction of $29,200; $30,700 if blind and 65 and older.
• Married filing separately couples can claim a standard deduction of $15,300 if one spouse is 65 and older or blind; $16,850 if two spouses are 65 and older or blind; $18,350 if one spouse is 65-plus or blind and the other is 65-plus and blind; $19,850 if both spouses are 65-plus and blind.
• Head of household filers can claim a standard deduction of $22,650; $24,500 if blind and 65 and older.

2023 tax brackets are wider

The 2023 income tax rates are the same as in 2022: 10%, 12%, 22%, 24%, 32%, 35% and 37%. However, the income ranges for each tax bracket have increased more than usual to account for inflation.

• 10% for individual incomes of $0 to $11,000 and $0 to $22,000 for married couples filing jointly
• 12% for individual incomes of $11,001 to $44,725 and $22,001 to $89,450 for married couples filing jointly
• 22% for individual incomes of $44,726 to $95,375 and $89,451 to $190,750 for married couples filing jointly
• 24% for individual incomes of $95,276 to $182,100 and $190,751 to $364,200 for married couples filing jointly
• 32% for individual incomes of $182,101 to $231,250 and $364,201 to $462,500 for married couples filing jointly
• 35% for individual incomes of $231,250 to $578,125 and $462,501 to $693,750 for married couples filing jointly
• 37% for individual incomes of $578,126 and up and $693,751 and up for married couples filing jointly

Energy Efficient Home Improvement Credit increases

You can claim a bigger tax credit for energy-efficient home improvements made in 2023. With the Energy Efficient Home Improvement Credit, you can claim 30% of the cost—up to a maximum of $1,200—of energy-efficient doors, windows, skylights, insulation materials, water heaters, and furnaces. You can claim 30% of the cost—up to a maximum of $2,000—of heat pumps, biomass stoves, and boilers. In 2022, the maximum amount was only $500.

New used electric vehicle tax credit

A $7,500 tax credit on new electric vehicles took effect in 2022. Now, there’s a credit for used EVs. If you bought a used electric vehicle or fuel cell vehicle in 2023 for $25,000 or less, you can claim a clean vehicle tax credit for 30% of the sales price or $4,000, whichever is less. To qualify for the credit, your modified adjusted gross income can’t exceed $150,000 if you’re married filing jointly, $112,500 if you’re filing as head of household, or $75,000 for all other filers.

Traditional and Roth IRA income limit changes

The maximum you can contribute to a traditional IRA or Roth IRA is slightly higher in 2023 than in 2022: $6,500 versus $6,000. If you’re 50 or older, you can make an additional $1,000 catch-up contribution, bringing your total contribution limit to $7,500. Be aware that you have until April 15, 2024, to make 2023 IRA contributions.

You can deduct your full contribution to a traditional IRA if neither you nor your spouse are covered by a retirement plan at work. However, if you contribute to an IRA and you or your spouse are covered by an employer-sponsored retirement plan such as a 401(k), the amount you can deduct can be reduced if your income falls within a certain range. The deduction is eliminated once your income exceeds that range. For 2023, those ranges have increased.

Higher income phase-out ranges for traditional IRA deductions

• Single or head of household taxpayers covered by a workplace retirement plan can deduct the full amount of an IRA contribution if their modified adjusted gross income was less than $73,000 in 2023. They can claim a partial deduction if their income falls between $73,000 and $83,000 in 2023, up from $68,000 to $78,000 in 2022.
• For married filing jointly taxpayers when a spouse making IRA contributions is covered by a workplace retirement plan, the income phase-out range for claiming an IRA deduction is $116,000 to $136,000, up from $109,000 to $129,000.
• For an IRA contributor without a workplace retirement plan who is married to a spouse with a workplace plan, the phase-out range is $218,000 to $228,000, up from $204,000 to $214,000.
• For married couples filing separately with a workplace plan, the phase-out range remains at $0 to $10,000.

Higher income limits for Roth IRA contributions

To contribute to a Roth IRA, your modified adjusted gross income must fall within a certain range. You can contribute the full amount ($6,500 in 2023) if your modified AGI falls below the lower amount in the range. The amount you can contribute is reduced if your modified AGI falls within the range. And you can’t contribute to a Roth once your modified AGI exceeds the upper bound of the range. The ranges for 2023 have increased.

• For single or head of household filers, the range is $138,000 to $153,000, up from $129,000 to $144,000.
• For married couples filing jointly, the range is $218,000 to $228,000, up from $204,000 to $214,000.
• For married couples filing separately, this category is not subject to an annual inflation adjustment, so it remains at $0 to $10,000.

Saver’s Credit income limits rise

The income limit for claiming the Saver’s Credit has increased. Also known as the Retirement Savings Contributions Credit, this tax credit can be claimed by workers who contribute to an IRA, 401(k) or similar workplace retirement plan and meet certain income limits. Depending on your adjusted gross income, the amount of the credit is 50%, 20%, or 10% of contributions you made—up to a maximum of $1,000 for single filers or $2,000 for married filing jointly filers.

To claim the credit, your AGI in 2023 must fall below $73,000 for married couples filing jointly; $54,750 for heads of household; and $36,500 for singles or married individuals filing separately.

Higher gift tax exclusion

The IRS allows you to give a certain amount annually to individuals without having to file a gift tax return. For 2023, the annual gift tax exclusion is $17,000 per recipient, up from $16,000 in 2022. If you gave more than $17,000 to any one person in the past year, you will need to file Form 709.

Earned Income Tax Credit amounts change

The maximum income amount you can earn and still claim the Earned Income Tax Credit has increased. The adjusted gross income limits for 2023 are as follows:

• $17,640 ($24,210 for married filing jointly) if you don't have a qualifying child who has a valid Social Security number;
• 46,560 ($53,120 for married filing jointly) if you have one qualifying child who has a valid SSN;
• $52,918 ($59,478 for married filing jointly) if you have two qualifying children who have valid SSNs; or
• $56,838 ($63,398 for married filing jointly) if you have three or more qualifying children who have valid SSNs.

The maximum amount of the credit also has increased in 2023.

• No qualifying children: maximum credit of $600, up from $560
• One qualifying child: maximum credit of $3,995, up from $3,733
• Two qualifying children: maximum credit of $6,604, up from $6,164
• Three or more qualifying children: maximum credit of $7,430, up from $6,935

If your household includes a permanently disabled adult child or children, you might be able to claim them even though they are no longer minors. Talk with a tax professional about this credit.

Form 1099-K reporting rule delayed again

­­­­­Last tax season, third-party payment networks and online marketplaces such as Venmo, PayPal and Etsy were supposed to send a Form 1099-K to individuals who received more than $600 in payments through those networks for their goods and services. However, that requirement was delayed and has been delayed once again for the 2023 tax-filing season.

The prior 1099-K reporting threshold of $20,000 in payments from more than 200 transactions remains in effect for 2023. Even if you don’t receive a 1099-K, you still have to report any income you earned that was paid through third-party networks or online marketplaces.