The Internal Revenue Service (IRS) officially begins accepting tax returns today – marking the start of tax season.
In addition to making sure you're aware of the specific tax laws in your state, experts also urge Americans to review any major changes that have occurred in the year since they last filed a federal tax return.
For the 2023 tax year there were optimizations to the IRS programs, an expansion of tax brackets and an inflation-adjusted increase in the standard deduction.
A possible short-term change in the law – which includes an expansion of the child tax credit – could also affect your 2023 tax return.
Here are six changes you need to know about as tax season begins.
Increase in tax brackets
When comparing tax year 2023 to tax year 2022, there was a big change in federal income tax brackets.
While tax rates did not change, tax rates increased by around 7 percent. This was a larger expansion than usual and reflected 40-year high inflation rates in 2022.
This means higher incomes fall into lower income brackets than in previous years, meaning less income tax is paid.
For example, a taxpayer whose income hasn't really changed compared to last year could get a larger refund, tax consulting firm Jackson Hewitt told Fortune.
For tax year 2022, for example, the 24 percent marginal tax rate for single filers was applied to taxable income of $89,075 to $170,050.
For the 2023 tax year, this applies to taxable income of $95,375 to $182,100 – meaning over $6,000 has been moved to a lower income range.
For example, someone making $95,000 will pay hundreds of dollars less in federal taxes this year than they did last year.
In addition to making sure you're aware of the specific tax laws in your state, experts also urge Americans to review any major changes that have occurred in the year since they last filed a federal tax return
Larger standard deduction
The standard deduction – which is also adjusted for inflation – has also increased by around 7 percent from the 2022 tax year.
It is $13,850 for single applicants and $27,700 for married co-applicants.
Taxpayers claim the standard deduction to reduce their income by a set amount.
However, some taxpayers choose to itemize their deductions if they believe the total will be higher than the standard deduction.
This tax year, Americans who are over 65 or blind and meet certain criteria set by the IRS are now eligible for an additional standard deduction.
The additional standard deduction is $1,850 for single filers or those filing as heads of household and $3,000 for married couples filing jointly if each spouse is over 65.
This brings the total amount to $15,700 for single filers and $30,700 for married couples.
Switch to the Free File program
The IRS has raised the income threshold for its Free File program for the 2023 tax year – up $6,000 from last year to an adjusted gross income of $79,000 or less.
IRS Free File connects taxpayers with tax preparation and tax filing software companies that offer free online tax preparation and tax filing software.
Direct File Pilot
This tax year, the IRS is also testing a Direct File program – which is different from the Free File program.
The program allows eligible Americans to file their federal returns directly to the IRS for free.
The pilot is currently open to eligible taxpayers in 12 states – Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming.
The agency said qualified Americans also must report certain types of income, credits and deductions.
The pilot is initially limited to federal and state employees with relatively easy returns.
However, the IRS is expected to open the program to private sector workers in the dozen eligible states by mid-March.
The IRS in November postponed a reporting change for business payments through apps like PayPal or Venmo until 2023 (pictured: Commissioner Danny Werfel)
IRS 1099-K form changes delayed
Last November, the IRS announced it had delayed a sweeping rule change that would impact Americans who earn through payment apps like Venmo, Cash App or PayPal, or sites like eBay and Etsy.
The rule would have meant that Americans who earned $600 or more from sales of goods and services would have to report it using a 1099-K form, which reports business payments to the IRS.
However, the statutory body said the rule would remain unchanged for the 2023 tax year – requiring only those who received more than $20,000 and have over 200 transactions to report.
The law primarily affects gig economy workers such as hairdressers, taxi drivers and delivery couriers, who can receive tips through such apps.
IRS officials say one reason for the delay is taxpayer confusion about what types of transactions are reportable.
For example, peer-to-peer transactions such as selling a couch or car, transferring rent to a roommate, and buying concert tickets would not be reportable, whereas other purchases would.
“This step-by-step approach is correct for tax administration purposes and avoids unnecessary confusion,” said IRS Commissioner Danny Werfel.
Even though the IRS has delayed the rule change, you may still receive a 2023 1099-K in the coming weeks from a third-party company that paid you through an online platform.
Make sure any transactions reported therein reflect business transactions and not personal items, Tom O'Saben, director of tax content and government relations at the National Association of Tax Professionals, told CNN.
If the form contains some personal transactions, include all of the information from your 1099-K on your return, but exclude those personal transactions and include a note advising the IRS that the amount you deducted is not business income is, advised O'Saben.
Remember: Whether you receive a 1099-K or not, you must report all taxable income on your federal income tax return.
Ways and Means Chairman Jason Smith, R-Mo., authored the bill that would expand the child tax credit
Proposed changes to the child tax credit
Although tax season has officially begun, Congress is debating legislative changes that would include an improved child tax credit.
If approved, the bipartisan tax deal would benefit roughly 15 million children in the U.S. — and provide some tax relief to companies in return.
Lawmakers tried to pass the changes before the start of tax season.
Some have suggested that filers may need to amend their tax returns if the bill takes effect this tax season. Others have said it could be applied retroactively to 2023 tax returns if passed in the coming weeks.