Recent Tax Changes

It’s always a good idea to periodically check how much federal income tax you’re having withheld from each paycheck. This is especially important if your filing status changes because of marriage, divorce or the birth of a child; you or your spouse start or stop a second job; you have taxable income with no withholding (such as retirement income, unemployment compensation, capital gains or self-employment income); or you’re no longer able to claim certain credits or expect the amount you previously claimed to decrease by more than $500, which could happen in 2022 since several credits return to lower amounts with more restrictions. We encourage you to use the IRS’s Tax Withholding Estimator to perform a “paycheck checkup” to ensure you have the right amount of tax withheld from your paycheck. The online tool is available at https://apps.irs.gov/app/tax-withholding-estimator. 

An IRS online account makes it easy for people to quickly get the tax planning info they need. With the same ease that taxpayers have when banking online or placing an online shopping order, they can log in and get the latest on their payment history, balance, and more. 

Taxpayers can view information about their account including:

• Their payoff amount, which is updated for the current day 

• The balance for each tax year for which they owe taxes 

• Their payment history 

• Key information from their most current tax return as originally filed 

• Payment plan details if they have one 

• Digital copies of select IRS notices 

• Their address on file 

With an online account, taxpayers can also:

• Make a same day payment 

• Set up an online payment plan 

• Access tax records and transcripts 

• Authorize another person to represent them before the IRS or view their tax records 

• Approve and electronically sign Power of Attorney and Tax Information Authorization requests from their tax professional 

A taxpayer's balance will update no more than once every 24 hours, usually overnight. Taxpayers should also allow one to three weeks for payments to show in the payment history.

For the first time since the COVID-19 pandemic began, the IRS’s processing of individual returns and related activities returned to the agency’s normal goals for timeliness during the 2023 filing season, according to a report by the Treasury Inspector General for Tax Administration (TIGTA). This included clearing the carryover inventory of unprocessed individual returns received during 2022 by Feb. 4.

As of May 5, the IRS received 141.1 million returns, of which 134.1 million (95%) were electronically filed. The agency also issued $262.9 billion in refunds. TIGTA noted that the IRS received 2.7 million free file returns, a 10% decrease from the same period last year. Additionally, TIGTA found the IRS was correctly applying the applicable rules for rejecting filed returns.

The IRS announced a delay in the new $600 reporting threshold for Form 1099-K for third-party organizations for the year 2023. The delay was enacted to reduce confusion among taxpayers, tax professionals and payment processors.

The IRS plans to treat 2023 as a transition year, wherein reporting will only be required if the taxpayer receives over $20,000 and has more than 200 transactions. The IRS also plans to implement a $5,000 threshold for tax year 2024, in phase with the $600 reporting threshold required by the American Rescue Plan Act. It aims to minimize burden and provide easier reporting requirements for taxpayers, working closely with third party groups, tax professionals and others to ensure compliance with the law.

Even though the recent debt ceiling agreement between the White House and Republican leaders in the House of Representatives has cut the amount from $80 billion to roughly $59 billion, the IRS will still receive a significant funding boost over the next few years. It plans on spending some of that money on improving taxpayer services, but the bulk will be spent on enforcement. The agency says it intends to focus on tax avoidance by high-net-worth taxpayers. Families making under $400,000 annually are less likely to face an audit. It’s unclear how much of an impact the $21 billion cut to IRS funding will have on the agency’s enforcement activities, but the IRS still plans to increase its audit rates for high-income individuals, partnerships and corporations.

In late 2022, Congress passed a legislative package that included a series of bills known as SECURE 2.0, providing incentives for U.S. workers to save for retirement and making it easier for small businesses to offer retirement plans. The new law: • Raises the age for starting required minimum distributions (RMDs) to 73 for 2023 (and 75 in 2033) • Removes the requirement that owners of Roth IRAs take RMDs beginning in 2024 • Reduces the penalties for account holders who fail to take the required RMDs • Allows defined contribution retirement plans to add an emergency savings account • Requires businesses that start new 401(k) and 403(b) retirement plans to automatically enroll eligible employees beginning in 2025 • Allows employers to match employee contributions to Roth IRAs

Regulations proposed by the IRS this summer would require brokers to report the sale or exchange of digital assets by customers to the agency beginning in 2025. Under current law, taxpayers owe tax on gains and may be entitled to deduct losses on digital assets when sold, but for many taxpayers it is difficult and costly to calculate their gains. A new Form 1099-DA, issued by brokers, will help these taxpayers determine whether they owe taxes. Entities that would be required to issue Forms 1099-DA include digital asset trading platforms, digital asset payment processors and certain digital asset-hosted wallet providers. The proposed regulations would also require “real estate reporting persons” to report digital assets used in the purchase of real estate. Real estate reporting persons would include real estate brokers, title companies, closing attorneys and mortgage lenders.

Tax-advantaged educational savings accounts, also known as 529 plans, provide a way for parents to help their children or other family members save for college or to pay other educational expenses. However, not every beneficiary uses the full amount they paid into the plan. Beginning in 2024, the SECURE 2.0 Act allows beneficiaries to roll over unused funds into a Roth IRA without having to pay a penalty. However, there is a lifetime limit of $35,000 per beneficiary and the 529 account must have been open for at least 15 years. The rollover amount cannot exceed the beneficiary’s annual IRA contribution limit.

Using the extra funding it received in the 2022 Inflation Reduction Act, the IRS is moving forward with its plans to prioritize enforcement efforts against high-income earners, partnerships, large corporations and promoters abusing U.S. tax laws. The agency is touting this increased enforcement as part of its efforts to restore fairness to the U.S. tax system and will focus its efforts on taxpayers with more than $1 million in income and more than $250,000 in recognized tax debt.

Energy efficient home improvement 

A new credit is available for energy efficient home improvements that began after Jan. 1, 2023. The credit is equal to 30% of qualified expenses, including: • Energy efficient home improvements • Residential energy property expenses • Home energy audits The maximum credit that can be claimed each year is: • $1,200 for energy property costs, including certain energy efficient home improvements • $250 per door, up to $500 • $600 for windows • $150 for home energy audits • $2,000 per year for heat pumps, biomass stoves or biomass boilers There’s no lifetime dollar limit for the credit, so a taxpayer can claim the maximum amount each year until the credit expires in 2033.

Individual taxpayers were allowed credits for specified nonbusiness energy property expenditures. The credit applied to property placed in service before Jan. 1, 2022, in the taxpayer’s principal residence and was subject to a lifetime limit. The Inflation Reduction Act of 2022 (IRA) renamed the credit to Energy Efficient Home Improvement Credit and extended the credit to include property placed in service before Jan. 1, 2033. In addition, the IRA of 2022 increases the credit

amount to 30% (previously 10%) of the sum of the amount paid or incurred by the taxpayer for qualified energy improvements installed during the year and the amount of the amount of the residential energy property expenditures paid or incurred by the taxpayer during that year. Furthermore, the lifetime limit

no longer applies. Instead, the annual limit is $1,200 with specific limitations including the cost of installation on the amount of the credit that can be claimed for windows, skylights and other energy improvements ($600 annual total), doors ($250 for one, $500 for more than one), and $2,000 (for installations after December 21, 2022) for specified heat pumps, heat pump water heaters, and biomass stoves and boilers. In addition to the increased credit amount, roofs were removed as a building envelope component, where air sealing insulation, including air sealing material or system, was added. Improvements to or replacements

of a panelboard, sub-panelboard, branch circuits or feeders are now included as qualified energy property as long as requirements are met. The IRA of 2022 further expands the credit to homes located in the U.S. as long as the taxpayer uses that property as a residence. In other words, if a taxpayer makes energy efficient improvements on a second home, those expenses are now eligible for the credit under §25C.

Individuals were allowed the residential energy efficient property (REEP) credit for solar electric, solar hot water, fuel cell, small wind energy, geothermal heat pump and biomass fuel property installed in homes in years before 2024 [§§ 25D(a) and 25D(h)]. The credit amount was:

• 26% for property placed in service after Dec. 31, 2019, and before Jan. 1, 2023

• 22% for property placed in service after Dec. 31, 2022, and before Jan. 1. 2024

The IRA of 2022 extended the credit plus increased the credit amount to the following:

• 30% for property placed in service after Dec. 31, 2019, and before Jan. 1, 2033

• 26% for property placed in service after Dec. 31, 2032, and before Jan. 1, 2034

• 22% for property placed in service after Dec. 31, 2033, and before Jan. 1, 2035

These provisions generally apply to expenditures made after Dec. 31, 2021.

The IRA of 2022 renamed the credit to the clean vehicle credit and eliminated the number of vehicles (manufacture sales) for vehicles sold after Dec. 31, 2022. The credit for new qualified vehicles can be as high as $7,500. A qualified vehicle must have final assembly in North America (this includes specifications on the manufacturing and assembly of the battery) meet critical mineral requirements and have a minimum battery capacity of seven kilowatt-hours. In addition, the manufacturer’s suggested retail price (MSRP) for vans, SUVs, and trucks cannot exceed $80,000 and for any other vehicle $55,000. A list of eligible vehicles is available on the U.S. Department of Energy website. Unlike the prior credit, the clean vehicle credit is limited by the taxpayer’s Modified Adjusted Gross Income. The threshold amounts are $300,000 (MFJ or QW), $225,000 (HOH) and $150,000 for all others. Beginning in 2024, a taxpayer can “transfer” the credit to the dealer. The dealer then in turn reduces the purchase price of the vehicle. Essentially, this is the equivalent of a rebate.

Credit for Previously Owned Clean Vehicles 

The IRA of 2022 adds a credit for taxpayers who purchase a previously owned clean vehicle after Dec. 31, 2022, and before Jan. 1, 2033 (§25E). The credit is the lesser of $4,000 or 30% of the vehicle’s sales price. The sales price is limited to $25,000 and the transaction must be through a dealer. A MAGI limitation also applies for a previously owned clean vehicle. The threshold amounts are $150,000 (MFJ or QW), $112,500 (HOH) and $75,000 for all others.

A previously owned vehicle must meet the following:

• A motor vehicle with a model year that is at least two years earlier than the calendar year when

the taxpayer acquires it

• The original use started with a person other than the taxpayer

• Acquired in qualified sale

• Meets the requirements applicable to vehicles eligible for the clean vehicle credit for new vehicles

It should be noted a dependent of another taxpayer is not eligible for this credit.