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Tax benefits: What you should know before filing as IRS removes COVID-19 tax incentives?

The Internal Revenue Service (IRS) stated that the elimination of tax benefits from the COVID-19 era will alter how taxpayers file deductions this year and will likely result in reduced refunds or larger tax obligations for many Americans.

The Child Tax Credit is one of the major tax credits returning to 2019 levels (CTC). Depending on their income, filers who qualified for a $3,600 per dependant credit in 2021 will receive a $2,000 credit for each qualifying child under age 17 in 2022.

IRS Delays Reporting Of Extra-Income For Taxpayers

The Earned Income Tax Credit for taxpayers without children will be reduced to $500 in 2022, from $1500 in 2021. In 2022, the Child and Dependent Care Credit will return to its previous limit of $2,100, as opposed to $8,000.

In addition, taxpayers should be informed that the above-the-line charity deductions, which were $300 per single taxpayer and $600 per joint return, will expire in 2022. This year, tax filers must itemize to obtain these deductions.

Eric Bronnenkant, the head of tax at Betterment, remarked that the most significant changes for the 2022 tax year represent a return to the status quo.

The tax benefits of the pandemic era, such as the many rounds of stimulus payments and the expansion of the child tax credit, have expired.

In 2022, small businesses and side hustlers were expected to receive Form 1099K, which details their income and the number of transactions over $600 conducted through third-party settlement organizations (TPSOs) such as PayPal and Venmo.

Before 2022, the form was only required if a business conducted 200 or more third-party network transactions with a total value of $20,000 or more.

The IRS had planned to implement significant changes to the 1099-K form for this tax season, but those changes have been postponed until the 2024 tax season, said Karla Dennis, founder of Karla Dennis & Associates.

This is fantastic news for small business owners, as the IRS will no longer have a record of their actual income.

Read more: IRS: Americans receive tax refunds totaling $14.8 billion; When will you receive yours?

Inflation Brackets Adjusted for 2023

IRS-Tax-Finance-Money-CTC-US News
The Internal Revenue Service (IRS) stated that the elimination of tax benefits from the COVID-19 era will alter how taxpayers file deductions this year and will likely result in reduced refunds or larger tax obligations for many Americans.

Adjustments for inflation to tax brackets and standard deductions are greater than in recent years.

Each year, the IRS makes these adjustments. According to Armine Alajian, CPA and founder of the Alajian Group, the adjustments to the federal tax brackets in 2023 would likely have a greater impact.

Taxpayers will likely experience the effects of the federal income tax bracket adjustment during the 2023 filing season, Alajian added. The 2023 modifications may be more favorable for some individuals than the less extreme 2022 adjustments.

Inflation will have the following effect on standard deductions in 2023, which are available to all tax filers unless they choose to itemize their deductions:

  • The standard deduction for married couples will increase to $27,700, up $1,800 from 2022.
  • The standard deduction for single taxpayers and married taxpayers filing separately will increase to $13,850, up $900 from 2022.
  • In 2023, the standard deduction for heads of household will be $20,800, an increase of $1,400 from 2022.

Consider taking a personal loan to pay off debt at a lower interest rate, so reducing your monthly payments. You can access your customized rate without damaging your credit score by visiting Credible.

Read more: These IRS changes within five years could have an effect on your finances

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