The old saying that “nothing is certain but death and taxes” rings especially true when tax season rolls around each spring. And while you can rely on having to file taxes every year, the laws that govern taxes often change from one year to the next.
As you prepare to file your 2023 tax return in early 2024, be aware that a number of state and federal tax revisions have recently taken effect. Understanding the latest updates that could impact your tax situation can optimize deductions, avoid surprises that lead to penalties, and ensure you receive any credits or stimulus funds owed in a timely manner.
Review this guide to 2023 tax changes so you know what revisions have been made and how your tax return could be impacted when filing next year.
Inflation Reduction Act Introduces Significant Changes
The Inflation Reduction Act passed in August 2022 includes major provisions for healthcare, climate change initiatives, corporate taxes, and IRS tax enforcement. Multiple changes within the extensive bill take effect for 2023.
ACA Subsidy Extension Through 2025
The Act extended expanded Affordable Care Act subsidies for lower-income Americans to keep health insurance premiums reduced through 2025. Eligible taxpayers without employer health plans can continue claiming these subsidies when filing taxes in coming years.
IRS Adds 87,000 New Agents
The IRS is hiring 87,000 new employees by 2031, including many enforcement agents equipped to perform an estimated 760,000 additional annual audits once trained. This crackdown aims to close the “tax gap” between owed amounts and current voluntary compliance.
15% Corporate Minimum Tax
Large corporations now have to pay a minimum 15% tax on profits reported to shareholders to close loopholes, generating an estimated $313 billion in new federal revenue over 10 years.
Higher Incomes Reach Top Tax Bracket Sooner
Thanks to inflation adjustments, the income thresholds to trigger higher tax rates are not indexed as high for 2023. With boosted price levels, you could end up in a pricier bracket sooner.
Top 37% Bracket Reaches Over $578,125
The top tax bracket of 37%, which applied to 2022 incomes over $539,900 for single filers and $647,850 for married joint filers, now takes effect on $578,125 and $693,750 respectively next tax season.
Higher Standard Deduction, But Lower Comparative Value
While standard deductions climb slightly to $13,850 for single taxpayers and $27,700 for married couples, heightened inflation reduces real purchasing power. Itemizing exemptions may now make more sense again for some filers.
State Tax Updates Take Effect in California & Elsewhere
In addition to federal updates, several states have new tax laws and rates commencing in 2023 worth noting.
California Stimulus Checks Arriving Early 2023
Middle income California residents are receiving up to $1,050 in stimulus funds from January through the 2023 tax season under the state’s budget surplus relief plan. Qualified taxpayers will automatically get checks resembling federal stimulus rounds.
Golden State Stimulus for Businesses Too
California approved over $7 billion in COVID-19 relief grants and tax cuts for eligible businesses impacted by the pandemic, coming to taxpayers in 2023.
New Jersey Child Tax Credit Increase
The Garden State doubled its local child tax credit to $500, which when combined with the existing $500 Earned Income Tax Credit for childless workers could put $1,000 extra back in the pockets of qualifying lower-income residents.
Key Takeaways to Optimize 2023 Tax Filing
Major national and regional tax revisions for 2023 range from inflation adjustments impacting tax brackets to health insurance subsidies being extended another three years and states like California issuing special stimulus packages.
How these updates apply to your specific tax situation differs, but focusing on the following can help maximize savings:
- Carefully compare new tax bracket thresholds to estimate liability shifts
- Reassess if itemizing deductions now beats the standard deduction
- Ensure you collect any state stimulus or child tax credits owed
- Enable direct deposit for expedited refund processing
Staying up-to-date on the latest tax code changes each year ensures you can leverage revisions in your favor come filing season. Consult a tax professional to understand how legislative impacts for 2023 apply to your unique financial picture.
