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Well. It’s about that time of the year again—tax season. Groan. Some new things this year include an increased standard deduction, adjusted tax brackets, and some key changes to common tax credits and deductions.
We’ll dig into all those changes, plus a few more. First, let’s kick things off with the main details you need to know for the 2023 tax season:
- Tax filing deadline: April 18, 2023, is the big tax deadline for all federal tax returns and payments.
- Extension deadline: October 16, 2023, is the deadline if you request an extension.
- Standard deduction increase: For 2022, the standard deduction increased to $12,950 for single filers and $25,900 for married couples filing jointly.
- Tax brackets increase: Income tax brackets went up in 2022 to account for inflation.
And it’s never too early to start planning for next year, so here’s what you’ll want to know for the 2024 tax season:
- Standard deduction increase: The standard deduction for 2023 (which’ll be useful when you file in 2024) increases to $13,850 for single filers and $27,700 for married couples filing jointly.
- Tax brackets increase: The income tax brackets will also increase in 2023.
But that’s just scratching the surface! Let’s break down the details so you can file your taxes with confidence this year.
When Can I File My Taxes?
The 2023 tax season starts at the end of January. A W-2 form from your employer should be in your mailbox around then.1 Since many employers use a digital payroll system for direct deposit, you might also find your W-2 online. Freelancers should also be on the lookout for a 1099 form from each of their clients.
Taxes shouldn’t be this complicated. Connect with a RamseyTrusted tax advisor.
Here are a few other tax forms you might need:
- Mortgage interest statements
- Investment income statements
- Charitable contribution statements
Now’s also a great time to gather your receipts (you kept those, right?) if you plan on itemizing your deductions so you’re not scrambling and pulling your hair out by the time April rolls around.
Once you have these forms gathered and organized, you’ve got the green light to file your taxes. If you’re not sure you have everything you need, you’ll want to reach out to a tax pro—especially if you have a complicated tax situation.
Tax Year vs. Tax Season
Before we dive into tax brackets, let’s talk some lingo. You’ll often hear the phrases tax year and tax season. These are not the same thing.
The tax year is the actual year where you earn income, pay income taxes, make charitable contributions, work side gigs, etc. The tax season is when you file, report and pay any taxes owed from the last year.
So, during the 2023 tax season, you file taxes for the 2022 tax year. Got it? Keep that in mind whenever we’re talking about the tax season or tax year. It’s important!
Income Brackets and Rates for the 2023 and 2024 Tax Seasons
Here’s a refresher on how income brackets and tax rates work: Your tax rate (the percentage of your income you pay in taxes) is based on what tax bracket (income range) you’re in.
For example, if you’re single and your income is $75,000, then you’re in the 22% tax bracket. But that doesn’t mean your tax rate is a flat 22%. Instead, part of your income is taxed at 10%, another part at 12%, and the last part at 22%. (We break it down in the chart below.)
For the 2022 tax year, the tax brackets went up a few hundred dollars to account for inflation. The 2023 tax brackets also look a little different.
2022 Marginal Income Tax Rates and Brackets
|2022 Marginal Tax Rates||Single Tax Bracket||Married Filing Jointly Tax Bracket||Head of Household Tax Bracket||Married Filing Separately Tax Bracket|
|37%||Over $539,900||Over $647,850||Over $539,900||Over $323,9252|
2023 Marginal Income Tax Rates and Brackets
|2023 Marginal Tax Rates||Single Tax Bracket||Married Filing Jointly Tax Bracket||Head of Household Tax Bracket||Married Filing Separately Tax Bracket|
|37%||Over $578,125||Over $693,750||Over $578,100||Over $346,8753|
Higher Standard Deductions in 2022 and 2023
When you pay taxes, you have the option of taking the standard deduction or itemizing your deductions (calculating your deductions one by one). Itemizing is more of a hassle, but it’s worth it if your itemized deductions add up to more than the standard deduction.
For tax years 2022 and 2023, the standard deduction went up to adjust for inflation.
|Married Filing Jointly||$25,100||$25,900||$27,700|
|Married Filing Separately||$12,550||$12,950||$13,850|
|Head of Household||$18,8004||$19,4005||$20,8006|
Not sure whether you want to take the standard deduction or itemize? Everyone’s situation is different, so there’s no one-size-fits-all answer. You might want to talk to a tax pro if you’ve got a complicated situation with lots of possible deductions.
Tax Deductions and Credits to Consider for Tax Season 2023 and 2024
The closest things to magic words when it comes to taxes are deductions and credits. Both help you keep more money in your pocket instead of Uncle Sam’s but in slightly different ways.
Tax deductions help lower the amount of your income that can actually be taxed. Some deductions are only available if you itemize your deductions, while others are still available even if you decide to take the standard deduction.
Tax credits, on the other hand, are dollar amounts actually subtracted from your tax bill, and there are two types: refundable and nonrefundable. If a credit is greater than the amount you owe and it’s a refundable credit, the difference is paid to you as a refund. Score! If it’s a nonrefundable credit, your tax bill will be reduced to zero, but you won’t get a refund. Still a win!
Here are some deductions and credits you might be able to claim on your 2022 or 2023 tax return.
1. Charitable Deductions
One of the biggest changes to the 2023 tax season is how much of your charitable donations you can deduct. Unfortunately, the changes take away most of the extra benefits offered in 2021 because of the pandemic. For example, the $600 charitable deduction for non-itemizers—folks taking the standard deduction—has gone bye-bye.7 Bummer!
But you can still deduct qualified charitable donations you made in 2022—as long as you itemize your deductions. The limit for this is 60% of your adjusted gross income (AGI), which is your total income minus other deductions you’ve already taken.8
2. Medical Deductions
If you found yourself with hefty medical bills in 2022, you might be able to find at least some tax relief.
You can deduct any medical expenses above 7.5% of your adjusted gross income (AGI).9 For example, if your AGI was $100,000, you can deduct out-of-pocket medical expenses above $7,500 in 2022 or 2023. But you have to itemize your deductions in order to write off those expenses on your tax return.
3. Business Deductions
If you’re self-employed, there are a bunch of deductions you can claim on your tax return—including travel expenses and the home office deduction if you use part of your home for business purposes.10
But if you’re one of the millions of people who work remotely, you won’t be able to claim the home office deduction since it’s reserved for self-employed people only. Sorry!
4. Earned Income Tax Credit (EITC)
This one’s a biggie. The EITC is a refundable credit designed to help out low- and middle-income households. To qualify for the credit in the 2022 tax year, a single filer with no children must have an AGI below $16,480, while the cap for a married couple with three or more children is $59,187.11
Maximum Adjusted Gross Income Limits
|Dependents Claimed||Single, Head of Household or Widowed||Married Filing Jointly|
|3 or more||$53,057||$59,18712|
And here’s the maximum EITC credit amounts you can get based on your AGI and number of qualifying dependents:
Maximum EITC Credit Amounts
|Qualifying Dependents||Maximum Credit Amounts|
|3 or more||$6,93513|
You cannot claim the EITC if you have investment income over $10,300 or if you’re married filing separately.14
Depending on your income, your filing status and number of dependents, the credit could save you anywhere from a few hundred to a few thousand dollars on your taxes. But here’s a crazy stat: About one out of five eligible taxpayers either don’t claim the benefit on their taxes or don’t file a tax return at all.15 Don’t let that be you!
5. Child Tax Credit
Got kids? Well, here’s a tax credit just for you! The child tax credit (CTC) lets you credit up to $2,000 per dependent child under the age of 17. The income limit is $400,000 for married filing jointly and $200,000 for all the others.16 The CTC is also partially refundable up to $1,500.17
There are plenty of other deductions and credits that might be up for grabs depending on your situation. If you don’t want to miss out on any tax savings, you’ll want to work with a tax advisor who can make sure you’re not leaving anything on the table.
6. Child and Dependent Care Credit
This is another great credit parents and guardians should know about. The child and dependent care credit is a nonrefundable credit that allows taxpayers to offset some of the costs of paying for services like babysitters, day care and in-home caregivers for older dependents.
Here’s how it works: You can claim 20–35% of up to $3,000 ($6,000 for two or more dependents) for the cost of care. The percentage of the credit depends on your AGI. Families with an AGI of $15,000 or less can claim the full 35%. As you earn more income, the credit is reduced. But a family with an AGI of over $43,000 can still claim the minimum credit rate of 20%.18
Let’s break it down. You pay $250 a week for Junior to go to daycare. That’s about $13,000 a year (ouch). If you qualify to credit 20% of $3,000 in care costs, you get $600 knocked off your tax bill. Not too shabby!
7. Education Credits
Bettering yourself or your children through education is a good thing, and it’s even better when you get a tax break.
The American opportunity tax credit (AOTC) is a partially refundable credit that pays for education expenses for students in the first four years of college. You can claim up to $2,500 per student—and if the credit brings your tax bill to zero, 40% (up to $1,000) will be refunded to you.19 Who can complain about free money, especially when it comes to paying for college?
Another education credit is the lifetime learning credit (LLC). This one isn’t refundable, but it covers up to $2,000 in qualified educational expenses per return. While you can only take advantage of the AOTC for undergrad expenses, you can reap the benefits of the LLC for expenses related to all kinds of educational opportunities—from degree programs to technical classes to improving job skills.
But beware: You can claim both the AOTC and the LLC on your tax return—but not for the same student or the same expenses.20
1099-K Changes Delayed Until 2023 Tax Year
The IRS was set to make massive changes to the 1099-K form for this tax season, but those changes have just been delayed until the 2024 tax season. That’s good news for all you small business owners!
When you file your taxes in early 2023, a 1099-K form is only required if you’ve had more than 200 third-party business transactions a year and they’ve added up to more than $20,000 of income. These are the same thresholds for 1099-K forms as previous years. Looking ahead, however, a lot more people will have to file a 1099-K in 2024, especially those who own a small business or have a side hustle.
Here’s how it will break down: You’ll receive a 1099-K form during tax season 2024 if you accept payments for goods or services over a third-party network (think Venmo, PayPal, Stripe, Square, Zelle and Cash App) that are more than $600, even if it’s just one transaction over $600!21
And be careful—with every new change, there’s bound to be hiccups. Remember, the IRS doesn’t tax personal gifts from friends or family or reimbursements for personal expenses.22 So, if you receive a 1099-K by mistake, you might want to cover your bases by contacting whichever third-party network sent it to you.
Smaller Tax Refunds for 2023
Here’s some more not-so-awesome news: The IRS warned people to expect smaller tax refunds in 2023.23 Why? Two big reasons:
- There were no economic impact payments in 2022, so taxpayers won’t get an extra stimulus payment in their 2023 tax refund checks.
- Expanded tax credits and deductions—like the child tax credit and charitable contributions deduction—reverted to their pre-COVID-19 amounts.
But guess what? Getting a refund check isn’t all it’s cracked up to be. Basically, this means you’ve been giving Uncle Sam interest-free loans throughout the year! A tax refund is just the government paying back money that was already yours in the first place (unless you scored some sweet refundable tax credits).
What you really want to do is adjust your tax withholdings so you owe nothing and get nothing from the IRS every year. This way, those hard-earned dollars stay in your paycheck and come home with you every payday.
Student Loan Forgiveness Tax
If you follow the headlines, you know the Biden administration announced a plan to forgive up to $20,000 in student loans per person. Thanks to the American Rescue Plan, you won’t owe federal income taxes on loan forgiveness when (or if) the loans are actually forgiven—as long as it happens before 2025.24
Now, there’s a chance you might owe state income tax depending on where you live. If you live in a state that follows federal tax rules or doesn’t have an income tax, you’ve got nothing to worry about. But some states are either undecided or plan to tax student loan forgiveness as earned income. These states are Arkansas, California, Indiana, Minnesota, Mississippi, North Carolina and Wisconsin.25
Retirement Plans: 401(k)s, IRAs and More
There are several key changes and inflation adjustments to retirement plans in 2023—and some of those changes could impact your tax bill in 2024. Let’s dive in.
401(k) and IRA Contribution Limits Increase
To account for inflation and an increased cost of living, the IRS bumped up 401(k) and IRA retirement plan contribution limits for 2023:26
- If you contribute to a 401(k) or 403(b), you can now put in up to $22,500 a year (up from $20,500). You can also contribute an extra $7,500 as a catch-up contribution if you’re 50 or older.
- If you have a traditional or Roth IRA, you can now contribute up to $6,500 (up from $6,000). If you’re 50 or older, you can put in an extra $1,000.
Income Limits Increase for Roth IRA Contributions
The Roth IRA income limits for contributions are also increasing in 2023:27
- Single and head of household: You can contribute up to the limit if you make less than $138,000, a reduced amount between $138,000 and $153,000 (up from between $129,000 and $144,000), and nothing after $153,000.
- Married and married filing separately: You can contribute up to the limit if you make less than $218,000, a reduced amount between $218,000 and $228,000 (up from between $204,000 and $214,000), and nothing after $228,000.
- Married filing separately: You can only contribute to a Roth IRA if your income is less than $10,000.
Deduction Limits Increase for Traditional IRA Contributions
Remember this for the 2024 tax season. Phase-out limits for deducting traditional IRA contributions are . . . you guessed it, increasing. What are phase-out limits, you ask? It simply means that your deduction gets lower as your income gets higher.
You can take a full deduction up to the limit ($6,500 for most folks and $7,500 if you’re 50 or older) if neither you nor your spouse participate in an employer-sponsored plan. Cha-ching! If you do contribute to an employer-sponsored plan, the deduction phases out as your income increases depending on your filing status:28
- Single: You get a full deduction if your income is less than $73,000. You can take a partial deduction if your income is between $73,000 and $83,000. The deduction phases out completely if you make more than $83,000.
- Married filing jointly: You get a full deduction if you make less than $116,000. If your income is between $116,000 and $136,000, the deduction is only partial. Anyone making more than $136,000 gets no deduction.
Let’s say you’re not covered by an employer-sponsored plan at work but your spouse is:29
- Married filing jointly: You can take a full deduction if you make less than $218,000, a partial deduction if you make between $218,000 and $228,000, and no deduction if you make more than $228,000.
- Married filing separately: You get a partial deduction if you make less than $10,000. There’s no deduction if you make more than $10,000.
If you need help navigating retirement plans, it’s probably a good idea to reach out to an investment professional who can walk you through the process.
File Your Taxes With Confidence in 2023
Win with taxes (and avoid costly mistakes) when you do your taxes the Ramsey way. Ramsey SmartTax is the no-nonsense tax software you can trust. It’s simple to use with no hidden fees and no hidden agenda. It’ll even teach you along the way so you feel empowered to do your own taxes with confidence.
File your taxes with Ramsey SmartTax!
But what if you have a more complicated tax situation or had a wild year in 2022? In that case, working with a tax pro is a smart move. And if you’re looking for a trustworthy tax professional in your area, try one of our Endorsed Local Providers (ELPs). They’re RamseyTrusted and know the tax code so you don’t have to.