What You Need to Know for the 2023 Tax Season

The 2023 tax filing season is probably most notable for what’s missing: After three years of stimulus payments and pandemic tax breaks, nearly all of those extra benefits have faded away — and tax refunds are likely to shrink as a result.

The child tax credit, which was more generous in 2021 and had lifted millions of children out of poverty, along with the earned-income tax credit, have largely returned to their prepandemic size. Charitable donations for people who do not itemize their deductions have also expired.

“A lot of the special benefits were temporary, and lot of those things have rolled off at this point,” said Eric Bronnenkant, head of tax at Betterment, a financial services firm in New York. “We are returning to normal.”

There are still plenty of other meaningful changes, quirky rules and new layers of tax tediousness to be mindful of before you file your federal tax return, which is due by April 18 (though if you file for an extension, you have until Oct. 16).

Here’s what you need to know:

I take a deduction for mileage. Has anything changed this year?

Yes. With surging gas prices, the I.R.S. made a rare change in the middle of the year: It increased the amount that taxpayers can deduct for gas mileage, benefiting taxpayers who take the mileage deduction for business purposes and medical expenses. Active duty military members can also take a deduction for the costs of moving.

For the last six months of the year, from July 1 to the end of 2022, the business-related mileage rate rose to 62.5 cents per mile, up from 58.5 cents for miles driven Jan. 1 to June 30.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. “However, that would require not just being able to document the business miles, but also all other business expenses related to the vehicle,” said Mark Luscombe, a principal analyst at Wolters Kluwer Tax & Accounting, a tax software and analysis firm.

Taxpayers who itemize their returns may also use the deduction for miles driven related to medical expenses; that rate is 22 cents a mile for the second half of 2022, up from 18 cents, the rate for the first half of the year. The mileage rate is the same for military members’ moving expenses (available even if they do not itemize).

What tax breaks are available if I bought an electric car or made my home more energy-efficient?

There are a few — but more generous tax incentives can be claimed next tax season thanks to the Inflation Reduction Act, which was signed into law in August and expanded and extended many incentives. A recent guide from our colleagues, Nadja Popovich and Elena Shao, goes into greater detail.

For the 2022 tax year, however, taxpayers can claim a lifetime credit of up to $500 for qualified home improvement expenses related to energy efficiency, such as replacing exterior doors, windows, insulation materials or water heaters. But starting in 2023, the credit increases to $1,200 each year for certain improvements made through 2032. Additionally, there’s another credit worth up to $2,000 annually for various new water heaters and heat pumps. Together, the credits are worth up to $3,200 for each year through 2032, Mr. Luscombe said.

The residential clean energy property credit — for items like solar panels or wind turbines — was also extended, through 2034. From 2022 to 2032, the credit is 30 percent of qualified costs.

Buyers of new electric cars in 2022 can claim a credit of up to $7,500, but a new qualifying factor was added to the mix over the summer: Vehicles purchased last year between Aug. 17 and Dec. 31 must have undergone final assembly in North America. You can find out where your vehicle was assembled on the U.S. Department of Energy’s website. (Cars bought before Aug. 17 and received before 2023 aren’t subject to that requirement.)

The credit is still available for new vehicles purchased from 2023 to 2032, but eligibility rules — now subject to limits on taxpayer income and the car’s price — and other requirements have changed.

Install a charging station for your electric vehicle at your primary home last year? There’s a credit available, as long as the station meets certain requirements.

I received a one-time payment from my state. Is it taxable as income?

For most taxpayers, no. But it could be taxable for certain people living in Georgia, Massachusetts, South Carolina or Virginia.

Some quick background: Nearly two dozen states issued one-time payments to certain residents in 2022, usually to ease the sting of inflation. There was confusion about whether taxpayers were obligated to report the money as taxable income on their federal tax returns because the I.R.S. hadn’t provided any guidance before tax season began.

Nearly three weeks into tax season, they had an answer: While general payments made by states are usually deemed taxable income for federal tax purposes, there are exceptions that would apply to most of these payments.

Sixteen states’ payments were deemed not taxable because the I.R.S. said it viewed them as disaster or welfare payments, which are generally not taxable. Those states are California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. (The agency provided a chart that listed specific state payments that would not be taxable.)

In Alaska, dividend payments that are regularly made to residents generally are taxable, but the state’s supplemental energy relief payment will not be.

The situation is more nuanced in Georgia, Massachusetts, South Carolina and Virginia, where the I.R.S. determined that payments may be taxable: Taxpayers who claim the standard deduction (and most do) will not need to report the state payments as income. But taxpayers who itemize their deductions will — if the payment provides an extra tax benefit.

How would a taxpayer get an added benefit? People who itemize receive a federal deduction for taxes paid to state and local governments (including property taxes), also known as the SALT deduction, which is capped at $10,000 annually.

If a taxpayer owed $5,000 in state taxes but received a $500 state refund, that would mean the net payment to the government was $4,500. But the taxpayer would have reported $5,000 to the federal government for the SALT deduction, which would be overclaiming, explained Jared Walczak, vice president of state projects at the Tax Foundation. The solution, he explained, is to treat the payment as income.

What did the I.R.S. do with savings and tax brackets limits to ease the sting of inflation?

When a dollar buys less than it used to, the I.R.S. lets you put more of it away — if you can afford to, at least.

In 2023, the maximum amount of money you can save in most workplace retirement amounts — pretax — will be $22,500, up from $20,500 in 2022. The cap on annual I.R.A. contributions will be $6,500, up from $6,000.

The tax brackets have changed, too. For people in the 24 percent federal tax bracket, for instance, that rate will kick in for incomes over $95,375 in 2023, or $190,750 if you’re married and filing your taxes jointly. That’s up from $89,075 for single individuals and $178,150 for married couples filing jointly in 2022. There are similar changes in other brackets.

Not everything is subject to such adjustments. People age 50 and over in most workplace retirement plans can save an extra $7,500 in 2023 beyond the normal $22,500 cap, up from $6,500 in 2022. Cost-of-living changes to these so-called catch-up contributions do not apply to I.R.A.s, however. There, the extra savings for the 50-and-up group remain at $1,000.

In the world of tax-advantaged flexible spending accounts, the cap on the money you can set aside in a health care one is $3,050 in 2023, up from $2,850 in 2022. But dependent care accounts don’t change; the cap there stays at $5,000 per household, where it’s been for decades. States tend not to adjust tax breaks for their 529 college savings accounts either.

I regularly use Venmo and other online payment services. Why is the I.R.S. coming after me?

If you get paid through online payment processors like Venmo, PayPal or eBay, there are some changes coming, but the I.R.S. pushed back the effective date to Jan. 1, 2023.

Small businesses, self-employed people and gig workers have always been required to track and report their own income so they can calculate their tax bill. But now, the federal government said it planned to collect more of those tax dollars from people who received business income through online payment processors. A new law will require the processors to issue tax forms, called 1099-Ks, that will capture more of the sellers’ activity and report it to the I.R.S.

Before the changes, the processors issued 1099-Ks to taxpayers selling goods or services once their activity exceeded 200 transactions and $20,000 in aggregate payments annually. But new 2021 rules lowered that threshold to $600, with no transaction minimums. It’s now effective for the 2023 tax year.

People selling items — like a used couch or bike — through online marketplaces aren’t supposed to be affected by the new rules. If you paid $1,200 for a couch and sold it for $650, for example, you didn’t make a profit — that’s generally not taxable and you don’t need to report on your federal return, experts said.

Sending cash gifts or reimbursing a friend for your share of a restaurant tab shouldn’t be captured by the new law either — as long as these transactions are properly categorized on the app as between friends and family.

But mistakes happen, and it’s possible (probable?) you’ll get a 1099-K in error. In that case, you may need to report that you sold that couch at a loss on your federal return, Mr. Bronnenkant, of Betterment, explained.

Are there any tax consequences when my student loan balance is erased via a government program?

Probably not. Debt cancellation is generally counted as taxable income, but legislative changes make an exception for most student loan borrowers whose debt has been discharged from 2021 through 2025.

This covers loans held by borrowers who were defrauded by their schools, for example, or who qualified under the Public Service Loan Forgiveness program.

Many — but not all — states mirror the federal government’s treatment, so you may owe state tax, according to Wolters Kluwer.

Are there any changes affecting retirement accounts that I should keep in mind this year or in the coming years?

Yes. Legislation signed into law in late December makes it easier for certain people to save for retirement (mostly those with the wherewithal to save) on a tax-advantaged basis. But many of those changes didn’t take effect until this year and others don’t start until much later.

For example, retirees will be required to begin withdrawing money from their tax-advantaged retirement accounts like 401(k)s and traditional individual retirement accounts — known as required minimum distributions — the year a person turns 73, up from 72. The previous age had been 70½.

And starting in 2025, people ages 60 to 63 will be able to set aside more for retirement — with larger catch-up contributions — which could lower their tax bill.

Are there any changes coming to Roth I.R.A.’s?

Yes. Here’s an intriguing one: The new legislation from December will also make it possible for some people to roll over up to $35,000 from a 529 savings plan to a Roth I.R.A.

For years, lobbyists had worried that people were not saving for college (or not saving enough) because of concerns that they might not need the money, say, if a child doesn’t end up going to college.

Starting in 2024, leftover money from a 529 plan can be moved to the account beneficiary’s Roth I.R.A. There are limits though, including existing Roth contribution restrictions. Moreover, the 529 account in question has to be at least 15 years old, and you can’t roll over money that you deposited (or earnings from those deposits) from the previous five years.

Still, careful planners could deliberately oversave in a 529 plan to give a young adult a head start on retirement savings.

What’s changing for teachers?

For the first time, the tax deduction that educators for kindergarten through 12th grade can take is rising. It’s available for unreimbursed expenses like books, equipment and courses related to their work.

Since 2002, the deduction has been no more than $250. For 2022, it is $300.

Educators and the accountants that serve them are cheering. “Every one of our teacher clients qualifies,” said Erin Louis, an accountant in Seattle. “Teachers here are constantly spending money out of their own pockets.”

It’s been a bad year for crypto investors. Are they getting any new relief?

Not really. Existing tax law does allow people to take tax deductions for losses, and those rules apply to digital assets like crypto.

But the I.R.S. is staying in your face this year about declaring any winnings. Once again, there is a question on this year’s tax forms that everyone must answer about crypto and similar holdings: “At any time during 2022, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, gift or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”

Minnie Lau, an accountant in San Francisco, said that her clients were disappointed that a lingering question about the taxability of certain crypto assets remained unresolved. It involves whether rewards, in the form of digital assets, for so-called staking were taxable the moment you get those rewards or only when you sell or otherwise dispose of them.

Crypto investors were hopeful that a court case would settle the matter, but that did not happen this year. Ms. Lau said that she was taking the conservative approach and having clients pay taxes as soon as they were able to withdraw any rewards. In an interview, David Kemmerer, chief executive of the tax and portfolio-tracking software provider CoinLedger, said that his company was making a similar recommendation, as were other tax experts.

Ann Carrns contributed reporting.