The IRS continues to provide tips to help tax professionals and taxpayers as we approach the 2023 tax filing season. The agency provides a page to help taxpayers “get a jump” on their 2023 taxes, which is updated periodically. Professionals struggling with late and unprepared clients – the top challenge that firms reported struggling with in 2022, according to our 2022 Annual Accounting Industry Survey – could leverage the IRS website to help reduce this challenge during the 2023 tax season.
In addition to the IRS website, here is a compilation of what’s new – and key items to consider – as you prepare for the 2023 filing season.
Reporting rules changed for Form 1099-K
Taxpayers who have received third-party payments in tax year 2022 for goods and services that exceeded $600 should receive Form 1099-K, payment card and third-party network transactions.
Before 2022, Form 1099-K was issued for third-party networks transactions only if both of the following conditions were met:
- The total number of transactions exceeded 200.
- The aggregate amount of transactions exceeded $20,000
However, the American Rescue Plan Act of 2021 (ARPA) changed those conditions, lowering the reporting threshold for third-party networks that process payments for those doing business.
For tax year 2022, a single transaction exceeding $600 can require the third-party platform to issue a 1099-K. The net effect of this change is that many more taxpayers will receive 1099-Ks.
Advice for tax pros: prepare clients who may be impacted by this change now to preempt panicked phone calls when these 1099-Ks start rolling in. Also important is reassuring clients that cash received through third-party payment networks from friends and relatives as personal gifts or reimbursement for personal expenses is not taxable.
Some tax credits have returned to 2019 levels.
Many of the pandemic-era and ARPA credits expired at the end of 2021, so many tax credits have returned to pre-pandemic levels. Impacted credits include the Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and Child and Dependent Care Credit. Due to these changes, many taxpayers will likely receive a significantly smaller refund compared with the previous tax year.
Examples of changes include:
- Taxpayers who received $3,600 per dependent in 2021 for the CTC will, if eligible, get $2,000 for the 2022 tax year.
- For the EITC, eligible taxpayers with no children who received roughly $1,500 in 2021 will now receive $500 in 2022.
- The Child and Dependent Care Credit returns to a maximum of $2,100 in 2022 instead of $8,000 in 2021.
See the credits and deductions section of the IRS website for more details.
Advice for tax pros: if you haven’t already had conversations with clients who these changes may have impacted, do so now to prevent conversations about why refunds have deceased – or payment amounts have increased – after the client’s taxes have been prepared.