Standard Mileage Rate
The IRS has released the 2023 standard mileage rates for taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, med-ical, or moving expense purposes. The following chart reflects the new 2023 standard mileage rates compared to the 2021 and 2022 standard mileage rates.
|July 1, 2022||July 1, 2022|
|Business rate per mile*||65.5¢||62.5¢||58.5¢|
|Medical and moving rate per mile**||22.0¢||22.0¢||18.0¢|
|Charitable rate per mile||14.0¢||14.0¢||14.0¢|
|Depreciation rate per mile||28.0¢||26.0¢||26.0¢|
* A deduction for unreimbursed employee business travel is suspended for tax years 2018 through 2025, unless the deduction is allowed in determining adjusted gross income, such as members of a reserve component of the Armed Forces, state or local government officials paid on a fee basis, or certain performing artists.
** A deduction for moving expenses is suspended for tax years 2018 through 2025, unless the taxpayer is a member of the Armed Forces on active duty who moves pursuant to a military order and incident to a permanent change of station.
Inflation Adjusted Amounts
Each year, a number of provisions in the Internal Rev-enue Code (IRC) are adjusted for inflation. The IRS re-cently released the inflation adjusted amounts for 2023. The following chart highlights a number of these ad-justments, as they compare to the 2022 amounts.
|Standard deduction – MFJ||$27,700||$25,900|
|Standard deduction – Single||$13,850||$12,950|
|Standard deduction – HOH||$20,800||$19,400|
|Qualifying relative income limit||$4,700||$4,400|
|Maximum EIC for 3 or more qualifying children||$7,430||$6,935|
|Maximum EIC for 2 qualifying children||$6,604||$6,164|
|Maximum EIC for 1 qualifying child||$3,995||$3,733|
|Maximum EIC for no qualifying children||$600||$560|
|Section 179 expense limit||$1,160,000||$1,080,000|
|Section 179 investment limit||$2,890,000||$2,700,000|
|Section 179 SUV limit||$28,900||$27,000|
|Estates basic exclusion amount||$12,920,000||$12,060,000|
|Annual exclusion for gifts||$17,000||$16,000|
|Defined contribution plan contribution limit||$66,000||$61,000|
|401(k) elective deferral limit for under age 50||$22,500||$20,500|
|401(k) elective deferral limit for age 50 and older||$30,000||$27,000|
|SIMPLE elective deferral limit for under age 50||$15,500||$14,000|
|SIMPLE elective deferral limit for age 50 and older||$19,000||$17,000|
|IRA deduction limit for under age 50||$6,500||$6,000|
|IRA deduction limit for age 50 and older||$7,500||$7,000|
|Key employee definition for top-heavy plans||$215,000||$200,000|
|Highly compensated employee definition||$150,000||$135,000|
|Qualified plan compensation limit||$330,000||$305,000|
|Child Tax Credit (per qualifying child)||$2,000||$2,000|
|Refundable portion of child tax credit||$1,600||$1,500|
|QBI threshold amount – MFJ||$364,200||$340,100|
|QBI threshold amount – Single & HOH||$182,100||$170,050|
|QBI threshold amount – MFS||$182,100||$170,050|
|Foreign earned income exclusion||$120,000||$112,000|
|AMT exemption – MFJ & QW||$126,500||$118,100|
|AMT exemption – Single & HOH||$81,300||$75,900|
|AMT exemption – MFS||$63,250||$59,050|
Delay for $600 Reporting Threshold for 1099-Ks
The Internal Revenue Service has announced a delay in reporting thresholds for third-party settlement orga-nizations set to take effect for the upcoming tax filing season.
As a result of this delay, third-party settlement orga-nizations will not be required to report tax year 2022 transactions on a Form 1099-K to the IRS or the payee for the lower, $600 threshold amount enacted as part of the American Rescue Plan of 2021.
As part of this, the IRS released guidance today outlin-ing that calendar year 2022 will be a transition period for implementation of the lowered threshold reporting for third-party settlement organizations (TPSOs) that would have generated Form 1099-Ks for taxpayers.
“The IRS and Treasury heard a number of concerns re-garding the timeline of implementation of these changes under the American Rescue Plan,” said Acting IRS Com-missioner Doug O’Donnell. “To help smooth the transi-tion and ensure clarity for taxpayers, tax professionals and industry, the IRS will delay implementation of the 1099-K changes. The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and un-derstand the new reporting requirements.”
The American Rescue Plan of 2021 changed the report-ing threshold for TPSOs. The new threshold for business transactions is $600 per year; changed from the previous threshold of more than 200 transactions per year, ex-ceeding an aggregate amount of $20,000. The law is not intended to track personal transactions such as sharing the cost of a car ride or meal, birthday or holiday gifts, or paying a family member or another for a household bill.
Under the law, beginning January 1, 2023, a TPSO is re-quired to report third-party network transactions paid in 2022 with any participating payee that exceed a min-imum threshold of $600 in aggregate payments, re-gardless of the number of transactions. TPSOs report these transactions by providing individual payee’s an IRS Form 1099-K, Payment Card and Third-Party Network Transactions.
The transition period described in Notice 2023-10, delays the reporting of transactions in excess of $600 to trans-actions that occur after calendar year 2022. The transi-tion period is intended to facilitate an orderly transition for TPSO tax compliance, as well as individual payee compliance with income tax reporting. A participating payee, in the case of a third-party network transaction, is any person who accepts payment from a third-party settlement organization for a business transaction.
The change under the law is hugely important because tax compliance is higher when amounts are subject to information reporting, like the Form 1099-K. Howev-er, the IRS noted it must be managed carefully to help ensure that 1099-Ks are only issued to taxpayers who should receive them. In addition, it’s important that tax-payers understand what to do as a result of this report-ing, and tax preparers and software providers have the information they need to assist taxpayers.
Additional details on the delay will be available in the near future along with additional information to help taxpayers and the industry. For taxpayers who may have already received a 1099-K as a result of the statutory changes, the IRS is working rapidly to provide instruc-tions and clarity so that taxpayers understand what to do.
The IRS also noted that the existing 1099-K reporting threshold of $20,000 in payments from over 200 transac-tions will remain in effect.
IRS Completes Automatic Corrections for Excluded Unemployment Compensation
The Internal Revenue Service recently completed the fi-nal corrections of tax year 2020 accounts for taxpayers who overpaid their taxes on unemployment compensa-tion they received in 2020.
The American Rescue Plan Act of 2021, which became law in March 2021, excluded up to $10,200 in 2020 un-employment compensation from taxable income calcu-lations (up to $10,200 for each spouse if married filing joint). The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000.
To ease the burden on taxpayers, the IRS took steps to review the Forms 1040 and 1040-SR that were filed pri-or to the law’s enactment to identify taxpayers who had already reported unemployment compensation as in-come and were eligible for the correction. The IRS de-termined the correct taxable amount of unemployment compensation and tax.
Some taxpayers received refunds, while others had the overpayment applied to taxes due or other debts. In some cases, the exclusion only resulted in a reduction in their adjusted gross income. The IRS mailed a letter to these taxpayers to inform them of the corrections. Tax-payers should keep that letter with their tax records.
The IRS corrected approximately 14 million returns. This resulted in nearly 12 million refunds totaling $14.8 billion, with an average refund of $1,232.
Many of the adjustments included corrections to the:
If a taxpayer is eligible for the unemployment com-pensation exclusion and their account was not correct-ed by the IRS, they may need to file an amended 2020 tax return to claim the exclusion and any applicable non-refundable or refundable credits impacted by the exclusion.
Taxpayers should not file an amended return if they previously filed one claiming the exclusion. For more information about this, including eligibility require-ments, taxpayers should read the 2020 Unemployment Compensation Exclusion FAQs on IRS.gov.
If they do need to amend tax year 2020 Forms 1040 and 1040-SR, taxpayers can file Form 1040-X, Amended U.S. Individual Income Tax Return, electronically with tax filing software.
Taxpayers can view their 2020 tax records in their On-line Account or request that a 2020 tax account tran-script be mailed to them.
New Tax Gap Estimates
The Internal Revenue Service has released a new set of tax gap estimates on tax years 2014 through 2016 show-ing the estimated gross tax gap increased to $496 billion, a rise of over $58 billion from the prior estimate.
The gross tax gap is the difference between estimated ‘true’ tax liability for a given period and the amount of tax that is paid on time. As discussed below, it is import-ant to note that the tax gap estimates cannot fully ac-count for all types of evasion.
“These findings underscore the importance of ensuring fairness in our nation’s tax system,” said IRS Commis-sioner Chuck Rettig. “The increase in the tax gap esti-mates reflects that the IRS needs to do more, both in im-proving taxpayer service as well as working to improve tax compliance. The IRS remains committed to ensuring fairness and helping taxpayers while also working to bet-ter identify emerging compliance issues that contribute to the tax gap. The recent funding addition will help the IRS in many ways, increasing taxpayer education, signifi-cantly improving service to all taxpayers and focusing on high-income/high-wealth non-compliance in a fair and impartial manner supporting compliant taxpayers.”
After late payments and IRS efforts collected an addi-tional $68 billion, the IRS estimated the net tax gap was $428 billion. This increase in the tax gap can be attribut-ed to economic growth.
Between the two periods, 2011 – 2013 and 2014 – 2016, the estimated tax liability increased by more than 23 percent.
The tax gap estimates translate to about 85% of taxes paid voluntarily and on time, which is in line with re-cent levels. The new estimate is a slight improvement from 83.7 percent in a revised tax year 2011 – 2013 esti-mate, which dipped slightly from the original estimate released earlier. After IRS compliance efforts are tak-en into account, the estimated share of taxes eventually paid is 87% for 2014 – 2016.
The gross tax gap comprises three components:
A particular challenge for tax gap estimation is the time it takes to collect compliance data, especially data on underreporting that come from completed examina-tions (audits). To address this issue, the current release includes estimated tax gap projections for tax years 2017 – 2019.
Based on the projections for 2017 – 2019, the estimated average gross tax gap is projected to be $540 billion per year. The associated voluntary compliance rate is pro-jected to be 85.1 percent. The projection of enforced and other late payments is $70 billion, which yields a net tax gap projection of $470 billion. The associated non-com-pliance rate projection is 87.0 percent.
The gross tax gap nonfiling, underreporting, and under-payment component projections for Tax Years 2017 – 2019 timeframe are $41 billion, $433 billion, and $66 billion respectively.
As part of the larger effort to reduce the actual tax gap, the IRS will continue to fairly enforce the tax laws. In 2021, the latest year for which data is available, the IRS currently collected more than $4 trillion in taxes, penal-ties, interest and user fees.
Tax gap studies through the years have consistently demonstrated that third-party reporting of income sig-nificantly raises voluntary compliance with the tax laws. And voluntary compliance rises even higher when in-come payments are also subject to withholding. The IRS also has an array of other taxpayer service programs aimed at supporting accurate tax filing and helping ad-dress the tax gap. These range from working with busi-nesses and partner groups to a variety of education and outreach efforts.
The voluntary compliance rate of the U.S. tax system is vitally important for the nation. A one-percentage-point increase in voluntary compliance would bring in about $40 billion in additional tax receipts.
The tax gap estimates provide insight into the historical scale of tax compliance and to the persisting sources of low compliance.
“Keeping the voluntary compliance rate as high as pos-sible ensures that taxpayers believe our system is fair,” Rettig said. “The vast majority of taxpayers strive to pay what they owe on time. Those who do not pay their fair share ultimately shift the tax burden to those people who do, which fuels the tax gap. The IRS will continue to direct our resources to help educate taxpayers about the tax requirements under the law while also focusing on pursuing those who avoid their legal responsibilities.”
Estimating the tax gap; offshore, digital assets, oth-er categories not fully represented.
Given available data, these are the best possible estimates of the tax gap components presented, although they do not represent the full extent of potential non-compli-ance. There are several factors to keep in mind.
The IRS continues to actively work on new methods for estimating and projecting the tax gap to better reflect changes in taxpayer behavior as they emerge.