This newsletter highlights some of the most recent federal and state tax updates in the month of December.
Due date for 2022 Form 1099 NEC and Form W-2 – The due date for distributing these forms to recipients and for filing them with the IRS is January 31, 2023. Please get in touch with your tax advisor for the timely filing of these forms.
Reporting threshold for 2022 Form 1099-K – The reporting requirement for transactions reported on this form has changed. Prior to 2022, a form was required for payments which exceeded $20,000 and 200 transactions. For calendar years after 2021, the form must be issued for gross payments of goods or services exceeding $600, regardless of the total number of transactions. The 1099-K must be issued to recipients by January 31, 2023.
Estate and Gift tax exclusion amount – The annual gift tax exclusion is $17,000 for 2023 and $16,000 for 2022. Lifetime Gifts and estate tax exemption is $12,920,000 for 2023 and $12,060,000 for 2022. Note that the lifetime gift and estate tax exemption amount is scheduled to return to its pre-2018 level of $5 million, adjusted for inflation, in 2026.
Standard deduction amount –
- Married couples filing jointly: $27,700 for 2023 and $25,900 for 2022.
- Single and married filing separate: $13,850 for 2023 and $12,950 for 2022
- Heads of households: $20,800 for 2023 and $19,400 for 2022
Social security tax – The maximum earnings subject to social security tax: 2023-$160,200 and 2022- $147,000.
Tax credits under The Inflation Reduction Act – The Clean Vehicle Credit, Energy Efficient Home Improvement Credit, and Residential Clean Energy Credit are a few of the credits which are available to eligible taxpayers. For further details on these credits, please refer to our November newsletter.
The draft 2022 Form 1040 includes a revised question related to digital assets. The question now asks if, the taxpayer (a) received (as a reward, award, or payment for property or services); or (b) sold, exchanged, gifted, or otherwise disposed of a digital asset (or a financial interest in a digital asset) at any time during 2022. The question requires a yes or no response by all taxpayers; it should not be left unanswered.
The draft instructions for the 2022 Form 1040 define digital assets as “any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology”. This includes non-fungible tokens (NFTs) and virtual currencies such as cryptocurrencies and stablecoins. The instructions go on to provide examples of situations which would result in a “yes’ or “no“ answer to the question regarding digital assets. The instructions also indicate that transactions involving digital assets are generally capital in nature unless the assets are received as compensation for services or held for sale to customers in a trade or business.
On November 22, 2022, the Department of Treasury, IRS published proposed regulations on guidance related to foreign tax credit (FTC). The document addresses issues relating to the definition of a reattribution asset for purposes of allocating and apportioning foreign income taxes, the application of the cost recovery requirement and the application of the source-based attribution requirement to withholding taxes on certain royalty payments. Additionally, the proposed regulations provide examples illustrating the application of these new requirements.
This guidance was eagerly awaited after the 2022 FTC final regulations were issued earlier in the year and once finalized it would supplement and revise the said final regulations and the set of correcting amendments published in July 2022. The new proposed rule would be effective retroactively to January 2022, when the original December 2021 rules took effect. Once the proposed regulations are finalized, taxpayers may choose to apply some or all of the final regulations to earlier taxable years, subject to certain conditions. Refer to Rubino’s tax alert that provides an overview of the 2022 FTC final regulations.
If you are still scrambling to get to the post office to paper file your organization’s Form 990 series information or tax return, you may be regrettably surprised to receive an IRS penalty letter.
Required e-filing of Forms 990, 990-EZ, 990-PF & 990-T for tax years beginning after July 1, 2019.
The Taxpayer First Act, enacted July 1, 2019, requires tax-exempt organizations to electronically file information returns and related forms. The law affects tax-exempt organizations in tax years beginning after July 1, 2019.
- Form 990-EZ – For small exempt organizations, the legislation specifically allowed a postponement or “transitional relief”, however for tax years ending July 31, 2021, and later, Forms 990-EZ MUST be filed electronically.
- Forms 990 & 990-PF – Forms 990, Return of Organization Exempt from Income Tax, and 990-PF, Return of Private Foundation, for tax years ending July 31, 2020, and later MUST be filed electronically.
- Form 990-T – Form 990-T, Exempt Organization Business Income Tax Return, for tax years ending December 2020 and later with a due date on or after April 15, 2021, MUST be filed electronically.
- Form 990-N (e-Postcard) – Beginning August 1, 2022, smaller charities that are eligible and choose to file Form 990-N, MUST sign into the IRS modernized authentication platform to file electronically.
Find an Approved IRS Modernized e-File (MeF) Business Provider that meets your filing needs here.
On November 22, 2022, the U.S. Department of Education announced an extension of the pause on student loan repayment. In November’s newsletter, we had reported that the discharge of loans (under the student loan forgiveness plan) has been halted in view of the Federal Court of Appeals decision (Nebraska v. Biden, 22-3179, 8th US Circuit Court of Appeals). The Biden Administration has asked the Supreme Court to review the lower-court orders that are preventing the Department from providing debt relief. The US Supreme Court has agreed to hear the case, but the program will remain on hold until the case is heard in February 2023, with a decision expected this summer.
The Coronavirus Aid, Relief, and Economic Security (CARES) Acts introduced the Employee Retention Credit. Businesses that were affected by the COVID-19 pandemic can file an amended Form 941 to claim this credit if they meet specific eligibility requirements. The amended form, Form 941-X (Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund), cannot be electronically filed.
As a result, each submission must be manually reviewed by an IRS employee. Given this requirement, it should come as no surprise that there have been considerable delays in processing ERC claims. This backlog was noted in the 2022 annual report recently published by the IRS Advisory Council. If you are one of the many taxpayers who have filed or are in the process of filing, a claim, pack your patience.
For tax year 2022, the District of Columbia (DC) Earned Income Tax Credit (EITC) percentage has been increased to 70 percent of the federal EIC. Individuals with qualifying children receiving the DC EITC will be paid differently than in the past. Taxpayers will receive a refund equal to 40 percent of their federal EIC as usual after their return is processed. The additional 30 percent of the DC EITC, however, will be paid in monthly installments over the 11 months pursuant to District law.
Additionally, certain District residents who are not citizens or resident aliens of the United States and who are not eligible for the federal earned income tax credit will be eligible for a District EIC beginning in tax year 2023.
The Comptroller of Maryland issued Maryland Withholding Tax Facts for 2023 which provides information about employer withholding tax forms and reconciliation statements. The annual employer withholding reconciliation return (Form MW508) for tax year 2022 is due January 31, 2023. The publication also includes the 2023 tax rate schedules and local income tax rates.