This newsletter highlights some of the most recent federal and state tax updates in the month of February.
Federal Tax Updates
Delay in implementation of $600 reporting threshold for third-party payment platforms’ Forms 1099-k
As noted in last month’s newsletter, the American Rescue Plan of 2021 enacted a new reporting requirement for Form 1099-K. Third party settlement organizations including Venmo, PayPal and Cash App would be required to issue a Form 1099-K for any payments for goods or services of $600 or more. This requirement was to be effective for the 2022 tax year.
On December 23, 2022, the IRS announced a delay in the enactment of this requirement in response to the concerns of the taxpayers and to help reduce confusion during the upcoming 2023 tax filing season. It issued guidance stating that calendar year 2022 will be the transition period for implementing the lower threshold. For 2022, the Form 1099-K reporting requirements will remain the same as the 2021 requirements i.e., a form will be required when the gross amount of aggregate payments to be reported exceeds $20,000 and the number of transactions with the participating payee exceeds 200.
For taxpayers who may have already received a 1099-K as a result of the statutory changes, the IRS is working rapidly to provide instructions and clarity so that taxpayers understand what to do.
To help provide the taxpayers with more guidance and information, the IRS also released Frequently asked questions about Form 1099-K which provides details on reporting and filing of the form.
Frequently asked questions (FAQs) about energy-efficient home improvements and residential clean energy property credits
On December 22, 2022, the IRS issued FAQs which provide details about two of the credits which were amended by the Inflation Reduction Act of 2022. This fact sheet explains the changes to these tax credits, contains information on eligible expenditures, and provides examples of how the credit limitations work. These credits were first referenced in our November newsletter.
Tax Credits for Electric Vehicles
On December 29, 2022 the IRS published new information on availability of the tax credits for purchases of plug-in electric vehicles (EVs). More information will be published soon in the form of official guidance, but the Fact Sheet released by the IRS contains important information if you are considering purchasing an EV in 2023.
To qualify for the new clean vehicle credit, the purchaser’s modified adjusted gross income (MAGI) cannot exceed $300,000 for married couples filing jointly or for a qualifying surviving spouse or widow(er), $225,000 for head of household filers, and $150,000 for all other filers. Taxpayers can use their MAGI from the year the vehicle was placed in service or from the preceding year when determining if they qualify for the credit. The purchased vehicle must be acquired by the taxpayer for original use meaning that it has never been used by any taxpayer for any purpose.
The maximum available credit is $7,500 and the credit is nonrefundable; it can only be claimed to the extent of reported tax due and may not be carried forward.
Additionally, the plug-in EV must be a qualifying new vehicle. A detailed list of the criteria which must be met in order to qualify for the credit is listed in the Fact Sheet. Some of the key requirements include: the vehicle must have a battery capacity of at least 7 kilowatt hours, it must have a gross vehicle weight less of than 14,000 pounds, it must be made by one of the qualified manufacturers approved by the IRS and it must be assembled in North America. The MSRP cannot exceed $55,000 ($80,000 for SUVs, pickup trucks, vans). The seller of the vehicle is required to report certain information to both the taxpayer and the IRS within a specified time frame in order for the taxpayer to claim the credit.
If you are considering the purchase of a new EV in 2023, we urge you to consult this Fact Sheet. We will include additional guidance as it is released in our upcoming newsletters.
Secure 2.0 Act
President Biden signed into law several bills referred to as the Secure 2.0 Act. The Act will have a significant impact on employer-provided retirement plans and individual retirement plans.
Employees of non-profit organizations will benefit from the changes made available to 403(b) plans which allow plan modifications similar to those of 401(k) plans in the private sector. Specifically, the Act provides automatic enrollment for new workers, and gradually increases the minimum contribution amounts. This provision applies to plan years beginning after December 31, 2024.
Part-time employees will also benefit due to the expansion of eligibility requirements for those working less than 40 hours per week. Individuals will be eligible to participate in an employer’s 401(k) or 403(b) plan with two consecutive years of service of 500 hours.
Employees between the ages of 60 and 63 will be allowed increased catch-up contributions to their employer retirement plans based on the greater of $10,000 ($5,000 in a SIMPLE plan) or 150% of regular catch-up contributions. This change is effective for tax years beginning after December 31, 2024. The dollar amounts will be indexed for inflation starting in 2026.
Older workers and retirees will benefit from new deferral provisions that increase the age for required minimum distributions (RMDs) from 72 to 73 for individuals who had not reached age 72 as of December 31, 2022. This new required beginning date applies to IRAs and retirement plans (except for the current employer plan of individuals still working).
Finally, effective for the 2023 tax year, small businesses with less than 50 employees will benefit from the increased credits for retirement plan administrative costs. The credit increased from 50% to 100% of the start-up costs in each of the first three years with an annual limit of $5,000. An additional credit based on a percentage of employer contributions is available.
These are just a few of the benefits of the new Act. We can help if you have questions about these new provisions and how they could affect you.
State Tax Updates
Update for the 2023 tax filing season
District of Columbia
The District of Columbia Office of Tax and Revenue (OTR) issued Withholding Tax Forms for 2023 Filing Season specifying the withholding forms with their instructions and filing due dates for each of them.