IRS Highlights Shrinking Tax Credits, Third-Party Payment Changes for 2023

The Internal Revenue Service on Tuesday reminded taxpayers of new rules that kick in next year as well as tax credits that will revert to previous levels and eligibility changes that took effect under new laws.

To help taxpayers prepare for the 2023 filing season, the agency has updated its ”Get Ready” page on IRS.gov.

Some tax credits will return to 2019 levels. “This means that affected taxpayers will likely receive a significantly smaller refund compared with the previous tax year,” the IRS said.

As explained by the IRS, changes include amounts for the Child Tax Credit (CTC), Earned Income Tax Credit (EITC) and Child and Dependent Care Credit, and are as follows:

Those who received $3,600 per dependent in 2021 for the CTC will, if eligible, get $2,000 for the 2022 tax year.
For the EITC, eligible taxpayers with no children who received roughly $1,500 in 2021 will get $500 for 2022.
The Child and Dependent Care Credit returns to a maximum of $2,100 in 2022, from $8,000 in 2021.

The IRS also reminds taxpayers that there are no more above-the-line charitable deductions.

“During COVID, taxpayers could take up to a $600 charitable donation tax deduction on their tax returns. However, in 2022, those who take a standard deduction may not take an above-the-line deduction for charitable donations,” the IRS said.

For tax year 2022, taxpayers may still qualify for temporarily expanded eligibility for the premium tax credit, the IRS said.

The IRS states that it will soon mail letters on behalf of the Center for Medicare & Medicaid Services, sharing information about obtaining marketplace health care coverage.

The premium tax credit, or PTC, the IRS explains “is a refundable credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the Health Insurance Marketplace.”

To get this credit, a taxpayer must meet certain requirements and file a tax return with Form 8962, PTC.

For tax years 2021 and 2022, the American Rescue Plan Act of 2021, or ARPA, “temporarily expanded eligibility for the premium tax credit by eliminating the rule that a taxpayer with household income above 400% of the federal poverty line cannot qualify for a premium tax credit,” the IRS explains.