Tax Season Is Here: 6 Big Changes, and How to Get Your Refund Faster

Tax season starts today, with the Internal Revenue Service promising improved customer service and taxpayers hoping to put a challenging 2022 behind them.  

The agency will accept 2022 tax year returns from Jan. 23 to April 18 this year. Yes, taxpayers have three extra days this year; the usual April 15 deadline is pushed back because of the calendar.

Following a few dismal seasons where taxpayers struggled to reach IRS help, the agency announced the hiring of more than 5,000 new telephone operators and the addition of more in-person staff to help answer taxpayer queries, funded by the Inflation Reduction Act of last summer. 

Those hires might come in handy this year, as there are some significant changes for taxpayers. Here’s a guide to those changes and some tips on how to get your return faster.

Don’t Count on the Expanded Child Tax Credit and Other Pandemic Programs

Many pandemic-era assistance programs have expired, and as a result, some taxpayers could see smaller refunds than in recent years or owe money.

Among the pandemic-era provisions that have ended is the expanded child tax credit. For 2021, the maximum child tax credit increased from $2,000 to $3,000 per qualifying child age 6 and older and from $2,000 to $3,600 per qualifying child under the age of six, and the age limit was raised from 16 to 17. This credit will revert to the $2,000 and the age cap will return to 16 for tax year 2022.

Also returning to prior levels are the credit for child and dependent care expenses and the earned-income tax credit for low and moderate-income filers. For 2022, the credit for child and dependent care expenses is nonrefundable, meaning you can’t put any excess toward your refund, and maxes out at $2,100 for two or more qualifying people, versus $8,000 and potentially refundable last year. The earned-income tax credit varies widely based on income, filing status, and number of children; for 2021, the maximum credit amount was nearly tripled for certain qualifying taxpayers.

The ability of non-itemizers to deduct $300 in charitable contributions, or $600 for couples, is another pandemic-era perk that is no longer available.

Be Strategic With Market Losses

While market losses are painful in the moment, some losses can help when it comes to tax time.

Last year was marked by steep market losses, and investors who sold assets that declined in value since they bought them may be able to use those losses to their advantage. Recognized losses can be used to offset capital gains incurred by selling appreciated assets. If capital losses exceed capital gains, you may be able to use the excess to offset up to $3,000 of ordinary income a year. Anything remaining can be carried forward to future years. 

Know What Changes Were Delayed

One of the scheduled changes for tax year 2022 has been delayed. In December, the IRS postponed the requirement that third-party settlement firms including Venmo, PayPal, and Cash App send users and the IRS a report of transactions received above $600 on a Form 1099-K. Instead, that requirement is scheduled go into effect for calendar year 2023, with 1099-Ks going out in early 2024.

This new requirement is intended for business income, not for personal transactions like splitting the cost of a meal with friends. Even though you might not receive a record of business income incurred via these platforms, “you should always be reporting your income, even if it isn’t on a tax form,” said Eric Bronnenkant, head of tax at Betterment.

Keep Unemployment in Mind

Tech workers bore the brunt of job cuts last year in waves of layoffs that have continued into the new year. If you’re among them, keep in mind that severance pay and unemployment income are taxable, as are payments for any accumulated vacation or sick time. This isn’t a new policy, but it might be new to you if you’re finding yourself unemployed for the first time.

File Early and Electronically

Experts generally urge taxpayers to file early in the season, since that prevents criminals from filing a fraudulent form on your behalf to try to claim your refund. Remember, if the IRS needs to reach you, the agency will initiate contact via the U.S. Postal Service and never through social media, text, or a threatening phone call.

Speed up your return by filing electronically. The IRS is still working through a backlog of paper returns from the previous several years of tax filings. “The system is set up for electronic filing,” Burnette said. “If you file your return on paper, good luck.”

IRS Free File, a service that offers guided preparation and free filing, is available to taxpayers with incomes of $73,000 or less. 

Understand How Extensions Work

Taxpayers who request an extension will have until Monday, Oct. 16 to file. An extension only grants you more time to hand in your return. If you owe the IRS any money, you’ll still have to pay it by April 18. 

Filing your return and paying the IRS any money owed are two separate events, said Rob Burnette, CEO and financial advisor at Outlook Financial Center in Troy, Ohio, and a registered tax preparer with the IRS. If you owe money but can’t afford to pay it right away, you can still file your return early and then pay whatever you owe by April 18. 

Write to Elizabeth O’Brien at elizabeth.obrien@barrons.com