1. Income tax brackets shifted a bit

There are still seven tax rates, but the income ranges (tax brackets) for each rate have shifted slightly to account for inflation. For 2023, the following rates and income ranges apply:

2. The standard deduction increased slightly

After an inflation adjustment, the 2023 standard deduction increases to $13,850 for single filers and married couples filing separately and to $20,800 for single heads of household, who are generally unmarried with one or more dependents. For married couples filing jointly, the standard deduction rises to $27,700.

3. Itemized deductions remain mostly the same

For most filers, taking the higher standard deduction is more practical and saves the hassle of keeping track of receipts. But if you have enough tax-deductible expenses, you might benefit from itemizing.

The following rules for itemized deductions haven't changed much for 2023, but they're still worth pointing out.

• State and local taxes: The deduction for state and local income taxes, property taxes, and real estate taxes is capped at $10,000.
• Mortgage interest deduction: The mortgage interest deduction is limited to $750,000 of indebtedness. But people who had $1,000,000 of home mortgage debt before December 16, 2017, will still be able to deduct the interest on that loan.
• Medical expenses: Only medical expenses that exceed 7.5% of adjusted gross income (AGI) can be deducted in 2023.
• Charitable donations: In 2023, the annual income tax deduction limits for gifts to public charities1 are 30% of AGI for contributions of non-cash assets—if held for more than one year—and 60% of AGI for contributions of cash. If you give both can and non-cash assets, the overall limit is generally 50% of AGI.
• Miscellaneous deductions: No miscellaneous itemized deductions are allowed.

4. IRA and 401(k) limits are slightly higher

The traditional IRA and Roth contribution limits in 2023 increased slightly from 2022. Individuals can contribute up to $6,500 to an IRA, and those age 50 and older also qualify to make an additional $1,000 catch-up contribution. In addition, the 2023 contribution limits for tax-deferred 401(k)s and Roth 401(k)s have increased to $22,500. If you're age 50 or older, you qualify to make an additional $7,500 catch-up contribution for this tax year as well.

If you're able to, consider maxing out your contributions to these accounts. Doing so can provide a huge boost to your retirement saves and potentially provide a tax deduction.

5. You can save a bit more in your health savings account (HSA)

For 2023, the maximum you can contribute to an HSA is $3,850 for an individual (up $50 from 2021) and $7,750 for a family (up $100). People 55 and older can contribute an extra $1,000 catch-up contribution.

To be eligible for an HSA, you must be enrolled in a high-deductible health plan (which usually has lower premiums as well). Learn more about the benefits of an HSA.

6. The Child Tax Credit could give you a tax break

Tax credits, which reduce the tax you owe dollar for dollar, are normally better than deductions, which reduce how much of your income is subject to tax. In 2023, the Child Tax Credit is $2,000 per child age 17 or younger. The credit is also subject to a phase-out starting at $400,000 for joint filers and $200,000 for single filers. For other qualified dependents, you can claim a $500 credit.

7. The alternative minimum tax (AMT) exemption is higher

Until the AMT exemption enacted by the Tax Cuts and Jobs Act expires in 2025, the AMT will continue to affect mostly households with incomes over $500,000. For 2023, the AMT exemptions are $81,300 for single filers and $126,500 for married taxpayers filing jointly. The phase-out thresholds are $1,156,300 for married taxpayers filing a joint return and $578,150 for all other taxpayers. (Once your income for the AMT hits the phase-out threshold, your AMT exemption begins to phase out at 25 cents for every dollar over the threshold.) 

8. The estate tax exemption is even higher

The estate and gift tax exemption, which is indexed to inflation, rose to $12,920,000 for 2023. But the now-higher exemption is set to expire at the end of 2025, meaning it could be essentially cut in half at that time if Congress doesn't act.

The annual gift exclusion, which allows you to give money to your loved ones each year without incurring any tax liability or using up any of your lifetime estate and gift tax exemption, increases to $17,000 per recipient (up $1,000 from 2022).

9. Child and Dependent Care Credit

You may be able to claim the child and dependent care credit if you paid expenses for the care of a qualifying individual to enable you (and your spouse, if filing a joint return) to work or actively look for work. Generally, you may not take this credit if your filing status is married filing separately. However, see What’s Your Filing Status? in Publication 503, Child and Dependent Care Expenses, which describes an exception for certain taxpayers living apart from their spouse and meeting other requirements. The amount of the credit is a percentage of the amount of work-related expenses you paid to a care provider for the care of a qualifying individual. The percentage depends on your adjusted gross income.

A. Dollar Limit

The total expenses that you may use to calculate the credit may not be more than $3,000 (for one qualifying individual) or $6,000 (for two or more qualifying individuals). Expenses paid for the care of a qualifying individual are eligible expenses if the primary reason for paying the expense is to assure the individual's well-being and protection. If you received dependent care benefits that you exclude or deduct from your income, you must subtract the amount of those benefits from the dollar limit that applies to you.

B. Qualifying Individual

A qualifying individual for the child and dependent care credit is:

• Your dependent qualifying child who was under age 13 when the care was provided,
• Your spouse who was physically or mentally incapable of self-care and lived with you for more than half of the year, or
• An individual who was physically or mentally incapable of self-care, lived with you for more than half of the year, and either: (a) was your dependent; or (b) could have been your dependent except that he or she received gross income of $4,400 or more, or filed a joint return, or you (or your spouse, if filing jointly) could have been claimed as a dependent on another taxpayer's 2022 return.

C. Care Providers

You must identify all persons or organizations that provide care for your child or dependent. You must report the name, address, and TIN (either the social security number or the employer identification number) of the care provider on your return. If the care provider is a tax-exempt organization, you need only report the name and address of the organization on your return. You can use Form W-10, Dependent Care Provider's Identification and Certification to request this information from the care provider. If you can't provide information regarding the care provider, you may still be eligible for the credit if you can show that you exercised due diligence in attempting to provide the required information. If you pay a provider to care for your dependent or spouse in your home, you may be a household employer. If you're a household employer, you may have to withhold and pay social security and Medicare taxes and pay federal unemployment tax. For more information, refer to Do You Have Household Employees? in Publication 503, Publication 926, Household Employer's Tax Guide, or Topic No. 756.

Payments to Relatives or Dependents - The care provider can't be your spouse, the parent of your qualifying individual if your qualifying individual is your child and under age 13, your child who is under the age of 19, or a dependent whom you or your spouse may claim on your return. 

D. Additional Child Credit Information 

For more information about qualifying for this credit and dependent care benefits, refer to Publication 503, Child and Dependent Care Expenses and Am I Eligible to Claim the Child and Dependent Care Credit?   

Topic No. 602, Child and Dependent Care Credit   https://www.irs.gov/taxtopics/tc602

10.  Excess Social Security and Medicare withholding refunds

Special Social Security and Medicare tax exemption: A J-1 alien who is a nonresident alien for tax purposes and is paid wages in exchange for personal services performed within the United States is exempt from paying U.S. Social Security and Medicare taxes on such wages under Section 3121(b)(19) of the Internal Revenue Code, as long as the employment is authorized by USCIS and the services are performed to carry out the purposes for which the J-1 visa was issued to them.

J-1 aliens who become U.S. tax residents or change their visa status to other work visa types (other than F, M or Q visa) are subject to Social Security and Medicare taxes on their wages. However, if a J-1 alien is from a foreign country with which the United States has entered into a Totalization Agreement, he or she may claim an exemption from U.S. Social Security and Medicare taxes by securing a Certificate of Coverage from the social security agency of his or her home country and presenting such Certificate of Coverage to his or her employer in the United States, according to the procedures set forth in Revenue Procedures 80-56, 84-54, and Revenue Ruling 92-9. An alternate procedure is provided in these revenue procedures for an alien who is unable to secure a Certificate of Coverage from his or her home country. For more information, see Social Security/Medicare and Self-Employment Tax Liability of Foreign Students, Scholars, Teachers, Researchers, and Trainees.

What to do if the tax is withheld: If a J-1 alien falls into the category of employees who are exempt from Social Security and Medicare tax, he or she may discuss with his or her employer to stop withholding and refund amounts that were already withheld. Employees that are unable to obtain a refund from their employer may file a Claim for Refund and Request for Abatement. 

See IRS for more, Information Regarding Request for Refund of Social Security Tax Erroneously Withheld on Wages Received by a Nonresident Alien on an F, J, or M Type Visa to obtain a refund.