News & Updates

Under Notice 2022-36, penalties for late-filing certain tax returns, as well as penalties for not reporting certain required information on the Form 1065 or Form 1120-S, are waived or abated if the relevant return was filed on or before September 30, 2022. But individuals and households that reside or have a business in recently declared FEMA disaster areas have postponed deadlines to file the return to get this relief, as noted below.

• Areas with a deadline of November 15, 2022, include:
• Counties in Missouri identified under FEMA's Major Disaster Declaration 4665.
• Counties in Kentucky identified under FEMA's Major Disaster Declaration 4633.
• The island of St. Croix in the U.S. Virgin Islands.
• Members of the Tribal Nation of the Salt River Pima Maricopa Indian Community.

• Areas with a deadline of February 15, 2023, include:
• Florida,
• Puerto Rico,
• North Carolina,
• South Carolina,
• Areas in Alaska identified under FEMA's Major Disaster Declaration 4672 and
• Hinds County, Mississippi.

The relief under Notice 2022-36 applies to the failure-to-file penalty that is typically assessed at a rate of 5% per month, up to 25% of the unpaid tax when a federal income tax return is filed late. This relief applies to forms in both the Form 1040 and 1120 series, as well as others listed in Notice 2022-36PDF, posted on IRS.gov.

Unlike the failure-to-file penalty, the failure-to-pay penalty and interest will still apply to any unpaid tax. The failure-to-pay penalty is normally 0.5% (one-half-of-one percent) per month, up to 25%. The interest rate is currently 6%, compounded daily.

Penalty relief for 2019 and 2020 returns is not available in some situations, such as where a fraudulent return was filed, where the penalties are part of an accepted offer in compromise or a closing agreement, or where the penalties were finally determined by a court. This relief is limited to the penalties that the notice specifically states are eligible for relief. For ineligible penalties, such as the failure-to-pay penalty, taxpayers may use existing penalty relief procedures, such as applying for relief under the reasonable cause criteria or the First Time Abate program. Visit IRS.gov/penaltyrelief for details.

Different relief applies to 2021 returns. Visit the disaster relief page on IRS.gov for more information about tax year 2021.

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New for 2023

The Inflation Reduction Act extended certain energy related tax breaks and indexed for inflation the energy efficient commercial buildings deduction beginning with tax year 2023. For tax year 2023, the applicable dollar value used to determine the maximum allowance of the deduction is $0.54 increased (but not above $1.07) by $0.02 for each percentage point by which the total annual energy and power costs for the building are certified to be reduced by a percentage greater than 25 percent. The applicable dollar value used to determine the increased deduction amount for certain property is $2.68 increased (but not above $5.36) by $0.11 for each percentage point by which the total annual energy and power costs for the building are certified to be reduced by a percentage greater than 25 percent.

Highlights of changes in Revenue Procedure 2022-38

The tax year 2023 adjustments described below generally apply to tax returns filed in 2024.

The tax items for tax year 2023 of greatest interest to most taxpayers include the following dollar amounts:

• The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700 up $1,800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900, and for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the amount for tax year 2022.
  
• Marginal Rates: For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).
  
  The other rates are:
  
• 35% for incomes over $231,250 ($462,500 for married couples filing jointly);
• 32% for incomes over $182,100 ($364,200 for married couples filing jointly);
• 24% for incomes over $95,375 ($190,750 for married couples filing jointly);
• 22% for incomes over $44,725 ($89,450 for married couples filing jointly);
• 12% for incomes over $11,000 ($22,000 for married couples filing jointly).
  
• The lowest rate is 10% for incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).
  
• The Alternative Minimum Tax exemption amount for tax year 2023 is $81,300 and begins to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption begins to phase out at $1,156,300). The 2022 exemption amount was $75,900 and began to phase out at $539,900 ($118,100 for married couples filing jointly for whom the exemption began to phase out at $1,079,800).
  
• The tax year 2023 maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers who have three or more qualifying children, up from $6,935 for tax year 2022. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
  
• For tax year 2023, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $300, up $20 from the limit for 2022.
  
• For the taxable years beginning in 2023, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,050. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $610, an increase of $40 from taxable years beginning in 2022.
  
• For tax year 2023, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,650, up $200 from tax year 2022; but not more than $3,950, an increase of $250 from tax year 2022. For self-only coverage, the maximum out-of-pocket expense amount is $5,300, up $350 from 2022. For tax year 2023, for family coverage, the annual deductible is not less than $5,300, up from $4,950 for 2022; however, the deductible cannot be more than $7,900, up $500 from the limit for tax year 2022. For family coverage, the out-of-pocket expense limit is $9,650 for tax year 2023, an increase of $600 from tax year 2022.
  
• For tax year 2023, the foreign earned income exclusion is $120,000 up from $112,000 for tax year 2022.
  
• Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000, up from a total of $12,060,000 for estates of decedents who died in 2022.
  
• The annual exclusion for gifts increases to $17,000 for calendar year 2023, up from $16,000 for calendar year 2022.
  
• The maximum credit allowed for adoptions for tax year 2023 is the amount of qualified adoption expenses up to $15,950, up from $14,890 for 2022

Items unaffected by indexing

By statute, certain items that were indexed for inflation in the past are currently not adjusted.

• The personal exemption for tax year 2023 remains at 0, as it was for 2022, this elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
  
• For 2023, as in 2022, 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
  
• The modified adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit provided in § 25A(d)(2) is not adjusted for inflation for taxable years beginning after December 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).

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Eligible taxpayers who received advance Child Tax Credit payments last year should file a 2021 tax return to receive the second half of the credit. Eligible taxpayers who did not receive advance Child Tax Credit payments last year can claim the full credit by filing a 2021 tax return.

The IRS urges grandparents, foster parents or people caring for siblings or other relatives to check their eligibility to receive the 2021 Child Tax Credit. It's important for people who might qualify for this credit to review the eligibility rules to make sure they still qualify. Taxpayers can use the Interactive Tax Assistant to check eligibility. Taxpayers who haven't qualified in the past should also check because they may now be able to claim the credit. To receive it, eligible individuals must file a 2021 federal tax return.

What is the Child Tax Credit expansion?

The Child Tax Credit expansion, which is a part of the American Rescue Plan, increased the amount of money per child families can receive and expanded who can receive the payments.

The American Rescue Plan increased the Child Tax Credit from $2,000 to $3,600 per child for children under the age of six, from $2,000 to $3,000 for children at least age 6 and raised the age limit from 16 to 17 years old.

The American Rescue Plan Act of 2021 expanded the Child Tax Credit for tax year 2021 only.

Who qualifies for the Child Tax Credit?

Taxpayers can claim the Child Tax Credit for each qualifying child who has a Social Security number that is valid for employment in the United States and issued by the Social Security Administration before the due date of their tax return (including an extension if the extension was requested by the due date).

To be a qualifying child for the 2021 tax year, the dependent generally must:

• Be under age 18 at the end of the year.
• Be their son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister or a descendant of one of these (for example, a grandchild, niece, or nephew).
• Provide no more than half of their own financial support during the year.
• Have lived with the taxpayer for more than half the year.
• Be properly claimed as their dependent on their tax return.
• Not file a joint return with their spouse for the tax year or file it only to claim a refund of withheld income tax or estimated tax paid.
• Have been a U.S. citizen, U.S. national or U.S. resident alien.

What are the eligibility factors?

Individuals qualify for the full amount of the 2021 Child Tax Credit for each qualifying child if they meet all eligibility factors and their annual income is not more than:

• $150,000 if they're married and filing a joint return, or if they're filing as a qualifying widow or widower.
• $112,500 if they're filing as a head of household.
• $75,000 if they're a single filer or are married and filing a separate return.

Parents and guardians with higher incomes may be eligible to claim a partial credit. Claiming these benefits can result in tax refunds for many individuals. Individuals should file electronically and choose direct deposit to avoid delays and receive their refund faster.

Finding free tax return preparation

A limited number of Volunteer Income Tax Assistance and Tax Counseling for the Elderly (VITA/TCE) program sites remain open and available to help eligible taxpayers get their tax returns prepared and filed for free by IRS trained and certified volunteers. Low- and moderate-income taxpayers as well as those age 60 and above can check to see if there is an available site in or near their community by using the VITA/TCE Site Locator.

IRS Free File available until Nov. 17 to help more people receive credits

The IRS Free File program, available only through IRS.gov and offered in partnership the tax software industry's Free File Alliance, offers eligible taxpayers brand-name tax preparation software to use at no cost. The software does all the work of finding deductions, credits and exemptions for which the taxpayer qualifies. It's free for most individual filers who earned $73,000 or less in 2021. Some of the Free File packages also offer free state tax returns to those who qualify. Taxpayers who earned more than $73,000 in 2021 and are comfortable preparing their own taxes can use Free File Fillable Forms. This electronic version of paper IRS tax forms is also used to file tax returns online.

To help more people claim a variety of tax credits and benefits, Free File will remain open for an extra month this year, until November 17, 2022.

The IRS is sending letters to more than 9 million individuals and families who appear to qualify for a variety of key tax benefits but did not claim them by filing a 2021 federal income tax return. Many in this group may be eligible to claim some or all of the 2021 Recovery Rebate Credit, the Child Tax Credit, the Earned Income Tax Credit and other tax credits depending on their personal and family situation. The special reminder letters, which will be arriving in mailboxes over the next few weeks, are being sent to people who appear to qualify for the Child Tax Credit, Recovery Rebate Credit (RRC) or Earned Income Tax Credit (EITC) but haven't yet filed a 2021 return to claim them. The letter, printed in both English and Spanish, provides a brief overview of each of these three credits.

These and other tax benefits were expanded under last year's American Rescue Plan Act and other recent legislation. Even so, the only way to get the valuable benefits is to file a 2021 tax return. Often, individuals and families can get these expanded tax benefits, even if they have little or no income from a job, business or other source. This means that many people who don't normally need to file a tax return should do so this year, even if they haven't been required to file in recent years.

People can file a tax return even if they haven't yet received their letter. The IRS reminds people that there's no penalty for a refund claimed on a tax return filed after the regular April 2022 tax deadline. The fastest and easiest way to get a refund is to file an accurate return electronically and choose direct deposit.

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While October 17 is the last day for most people to file a Form 1040 to avoid the late filing penalty, those who still need to file should do so as soon as possible. If they have their information ready, there's no need to wait.

However, some taxpayers may have additional time. They include:

• Members of the military and others serving in a combat zone. They typically have 180 days after they leave the combat zone to file returns and pay any taxes due.

• The IRS calls special attention to people hit by recent national disasters, including Hurricane Ian. Taxpayers with an IRS address of record in areas covered by Federal Emergency Management Agency disaster declarations in Missouri, Kentucky, the island of St. Croix in the U.S. Virgin Islands and members of the Tribal Nation of the Salt River Pima Maricopa Indian Community have until November 15, 2022, to file various individual and business tax returns. Taxpayers in Florida, Puerto Rico, North Carolina, South Carolina, parts of Alaska and Hinds County, Mississippi, have until February 15, 2023. This list continues to be updated regularly; potentially affected taxpayers by recent storms should visit the disaster relief page on IRS.gov for the latest information.

IRS Free File and other resources

IRS Free File is available to any person or family with an adjusted gross income (AGI) of $73,000 or less in 2021. Leading tax software providers make their online products available for free. Taxpayers can use IRS Free File to claim the Child Tax Credit, the Earned Income Tax Credit and other important credits. IRS Free File Fillable Forms is available for taxpayers whose 2021 AGI is greater than $73,000 and are comfortable preparing their own tax return—so there is a free option for everyone.

Online Account provides information to help file an accurate return, including Advance Child Tax Credit and Economic Impact Payment amounts, AGI amounts from last year's tax return, estimated tax payment amounts and refunds applied as a credit.

Taxpayers can also get answers to many tax law questions by using the IRS's Interactive Tax Assistant tool.

Additionally, taxpayers can view tax information in several languages by clicking on the "English" tab located on the IRS.gov home page.

Schedule federal tax payments electronically

Taxpayers can file now and schedule their federal tax payments up to the October 17 due date. They can pay online, by phone or with their mobile device and the IRS2Go app. When paying federal taxes electronically, taxpayers should remember:

• Electronic payment options are the optimal way to make a tax payment.
• They can pay when they file electronically using tax software online. If using a tax preparer, taxpayers should ask the preparer to make the tax payment through an electronic funds withdrawal from a bank account.
• Online Account and IRS Direct Pay allow taxpayers to pay online directly from a checking or savings account for free, and to schedule payments up to 365 days in advance. Taxpayers should be aware they will need to create an account to use Online Account services.
• Choices to pay with a credit card, debit card or digital wallet option are available through a payment processor. The payment processor, not the IRS, charges a fee for this service.
• The IRS2Go mobile app provides mobile-friendly payment options, including Direct Pay and debit or credit card payments.
• The Electronic Federal Tax Payment System (EFTPS) is convenient, safe and easy. Choose to pay online or by phone, using the EFTPS Voice Response System. EFTPS payments must be scheduled by 8 p.m. ET at least one calendar day before the tax due date.

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So far in 2022, the IRS has identified and reported thousands of fraudulent domains tied to multiple MMS/SMS/text scams (known as smishing) targeting taxpayers. In recent months, and especially in the last few weeks, IRS-themed smishing has increased exponentially.

Smishing campaigns target mobile phone users, and the scam messages often look like they're coming from the IRS, offering lures like fake COVID relief, tax credits or help setting up an IRS online account. Recipients of these IRS-related scams can report them to phishing@irs.gov.

"This is phishing on an industrial scale so thousands of people can be at risk of receiving these scam messages," said IRS Commissioner Chuck Rettig. "In recent months, the IRS has reported multiple large-scale smishing campaigns that have delivered thousands – and even hundreds of thousands – of IRS-themed messages in hours or a few days, far exceeding previous levels of activity."

With the approach of October's Cybersecurity Awareness Month, the IRS and the Security Summit partners in the states and the nation's tax community remind people and the tax professional community to be on the lookout for phishing scams and other schemes that could put sensitive tax data at risk.

In the latest activity, the scam texts often ask taxpayers to click a link where phishing websites will try to collect their information or potentially send malicious code onto their phones. The IRS does not send emails or text messages asking for personal or financial information or account numbers. These messages should all be red flags for taxpayers.

Beginning in the fall of 2020, the IRS observed an increase in reports of smishing scams requesting taxpayer personal and financial information. These smishing campaigns continued through the pandemic. The IRS has taken numerous steps to warn people of this ongoing threat, including posting a video about how to avoid IRS text message scams.

Taxpayers should continue reporting these scams to phishing@irs.gov. Their reporting allows the IRS to report these scams to the appropriate service providers for action, protecting other taxpayers who might receive a variant of the same scam.

While the IRS works to shut down online fraud, criminals are using ever-evolving tactics to cast a wider net and catch more victims, like using algorithms to automatically generate hundreds or even thousands of fraudulent domains. For example, a recent campaign used just three dozen stolen or bogus email addresses to create over 1,000 fraudulent domains.

"Particularly in these cases, the best offense is a good defense," said Rettig. "Taxpayers and tax pros need to remain constantly vigilant with suspicious IRS-related emails and text messages. And if you get one, sending the IRS important details from the text can help us disrupt the scams and protect others."

Reporting IRS-related smishing

The IRS maintains an inbox, phishing@irs.gov, to process IRS, Treasury and/or tax-related online scams only. Smishing involving other agencies and/or brands should not be reported to phishing@irs.gov.

Reporting IRS-themed texts to the IRS allows security professionals to track and disrupt these scams. Individuals reporting scam texts to the IRS should include both the body of the message and the sender's information in one email or text. Copying the actual text into an email is preferred. However, if necessary, screenshots can be sent. Scam SMS/text messages can also be copied and forwarded to wireless providers via text to 7726 (SPAM), which helps them spot and block similar messages in the future.

The following process will help capture important details for reporting smishing to the IRS:

• Create a new email to phishing@irs.gov.
• Copy the caller ID number (or email address).
• Paste the number (or email address) into the email.
• Press and hold the SMS/text message and select "copy".
• Paste the message into the email.
• If possible, include the exact date, time, time zone and telephone number that received the message.
• Send the email to phishing@irs.gov.