Here's what you need to know about new IRS tax guidelines before filing this year

GREENVILLE, S.C. —

As the income tax filing deadly approaches in April, anyone who files should know the tax laws have drastically changed this year, a Greenville tax expert warned.

Joanna Sinbandit, New Horizon Tax & Financial Services CEO, in Greenville, said those who are self-employed can start filing now, while others can begin filing later this month.

But don’t expect to get a lot back from Uncle Sam.

“It kind of went back to the 2019 rules pre-COVID,” Sinbandit said. “So, that’s why the refunds are a lot smaller this year.”

“For the last two years, during COVID tax year 2020 and 2021, if you did not work, you could use your 2019 adjusted gross income to claim the earned income tax credit,” Sinbandit said. “For 2022, they expired that provision,” she said.

WYFF News 4 also spoke with Mark Henry, CEO of Alloy Wealth Management in Greenville, to simplify all of the new changes.

Henry addressed the changes in a Q & A below.

Q: There are quite a few changes here – impacting tax brackets, deductions, and retirement contribution limits. Can you break it down for us?

• You can contribute MORE to your 401(k)
• The previous max contribution was $20,500
• In 2023, that will increase to $22,500
• Anyone 50 and older can contribute an extra $7,500
• May seem out of reach if you are struggling to pay the bills with inflation, but it’s nice to have the option to contribute more to a tax-deferred account

Q: Let’s talk more about the Social Security cost-of-living (COLA) increase. It’s the biggest one we’ve seen in 40 years. And on top of that, Medicare premiums are going down. How will that affect people on Social Security?

• If you claim Social Security benefits, you’re about to see an 8.9% increase in your paycheck
• You must be at least 62 years old to start claiming your Social Security. But you can until you’re 70 (full retirement age) if you want to.
• If you plan to cash in on this big raise, talk to your tax professional about whether to change your withholdings.
• You may be entering a different tax bracket because of this extra income
• If that’s the case, you’ll need to withhold more on your Social Security so you don’t get stuck with a huge tax bill at the end of the year.

Q: For those who are eligible, but haven’t started claiming Social Security yet, would next year be a good time to start since payments are going up?

• That depends. You need a plan based on your situation.
• You’ll probably want to delay taking Social Security if you’re still working full time.
• If you start claiming Social Security while you are still working (and before you reach your full retirement age), and you make more than a certain dollar amount, you may have to start paying Social Security back.
• We definitely don’t want that, so be sure to plan ahead and take the necessary steps to avoid that scenario.

Q: How can people take advantage of some of the other changes?

• The 401K catch-up contribution limit is also increasing by $1,000 in 2023 – to $7,500.
• If you’re 50 or older, consider taking advantage of this and putting more into savings pre-tax.
• The catch-up contribution limit for an IRA, which isn’t indexed to inflation, will not change.

Q: Is there any downside to putting more in our retirement savings this year?

• Always make sure your credit cards are paid off and you have a fully-funded emergency fund before you invest.
• An emergency fund should NOT come from retirement savings.
• You always want to have cash on hand.

Henry also said the IRS increased standard deductions for 2023.

• Married couples filing jointly: $27,700 ($1800 increase)
• Single taxpayers and married filing separately:$13,850 ($900 increase)

“If you’re married, consider the age difference between you and your spouse before you decide when to start claiming Social Security,” Henry said.

“My wife is 10 years younger than me and didn’t pay as much into the system because she was taking care of our kids during her working years. So, I plan to delay taking Social Security until I’m 70 so she can receive the highest amount possible for the rest of her life, especially if she outlives me, which she most likely will.”

Before you max out your 401(k) contributions, make sure you’re also saving in a Roth IRA or some other after-tax account.

• Most people save 80-90% of their net worth in a 401K that they’ve never paid tax on.
• Check with your employer to see if they offer a Roth 401. If they do, that’s a great place to put some extra money.
• You won’t get that tax credit when you’re investing, but you won’t pay taxes on it once you retire
• If you’re saving all your money in your 401K and running out of money in your checking account, that’s a problem.
• You never want to dip into your 401K to pay bills or cover basic expenses
• You’ll owe penalties and taxes for tapping into it before you’re suppose

According to data from the IRS:

“For the tax year 2022, the top tax rate remains 37% for individual single taxpayers with incomes greater than $539,900 ($647,850 for married couples filing jointly).”

The other rates are:

• 35%, for incomes over $215,950 ($431,900 for married couples filing jointly)
• 32% for incomes over $170,050 ($340,100 for married couples filing jointly)
• 24% for incomes over $89,075 ($178,150 for married couples filing jointly)
• 22% for incomes over $41,775 ($83,550 for married couples filing jointly)
• 12% for incomes over $10,275 ($20,550 for married couples filing jointly)

The deadline to file is April 18, 2023. Those filing can also request an extension if needed.

More information can be found here.