Tax Law Changes for 2023

Federal Tax Changes

There are relatively few changes in tax law for 2023, but some new benefits may help reduce your tax bill, especially if you took steps to use less energy at home.

• Taxpayers who did any of the following may be entitled to reductions in their tax bill up to a maximum of $3,200:

  • Installed energy efficient doors, windows, skylights, insulation, electric or natural gas heat pumps, heat pump water heaters, gas, propane or oil water heaters, furnaces or hot water boilers, or central air conditioning. There is also a credit for a home energy audit.

  • The equipment must have been installed in 2023, must be new (not used), must be expected to last 5 years, and be STAR rated for efficiency. In some cases labor to install the equipment is allowed but in other cases, it is not. Be sure to bring as much documentation as you can to your preparation appointment.

  • The new law also allows for a credit if you installed solar energy panels or purchased an electric vehicle, but you will need to go to a paid preparer for that.  Those returns cannot be completed at our sites.

• There is also a change in the rules for retired public safety officers. They can now deduct up to $3,000 in health insurance premiums whether they were deducted directly from their pension or whether they were paid separately. This means Medicare, long-term care and other premiums can now be used to get the deduction. There are also new rules that can eliminate the penalty for early withdrawals from qualified pension plans for public safety officers.

•     The penalty for failing to take Required Minimum Distributions (RMD) from qualified retirement accounts has been reduced from 50% to 25%.  If you turned 72 in 2023, you must start taking your RMDs by April 1, 2025. Keep in mind, though, that if you wait until 2025, you will have to take two RMDs in that year, which may put you in a higher tax bracket.

• The standard deductions have increase for 2023 as follows:

  • For single taxpayers, it will be $13, 850 ($15,700 if over 65 or blind).

  • For Head of Household, it will be $20,800 ($22,650 if over 65 or blind).

  • For couples filing jointly and Qualifying Surviving Spouses it is $27,700 ($30,700 if both taxpayers are over 65 or blind).

• --The standard mileage rates were raised to 65.5 cents per mile for business use and 22 cents per mile for medical travel. There was no change in the mileage rate for use of a car for charity (14 cents per mile).

• --Taxpayers who have a terminal disease, as certified by a physician, will not have to pay the 10% penalty for early withdrawals form qualified retirement accounts.

• --The temporary 100% deduction for business meals has ended; it reverts to the previous 50% rate.

• --The federal Earned Income Credit has increased to:

  •     $7,430 for those with 3 or more children

  •     $6,604 for those with two children

  •     $3,995 for those with one children

  •     $600 for those without children.

• --The maximum refundable portion of the child tax credit has increased to $1,600

Maryland Tax Changes

There are only a few changes that will affect your Maryland return:

• --The pension exclusion has been increased to $36,200. This will reduce the tax on certain pension income.

• --The amount that is exempt from taxes for military pensions has been increased to $20,000 for those over 55 and $12,500 for those under 55.

• --Union dues can now be deducted from taxable income. There is no limit, but the deduction is just for dues, not for insurance premiums or other benefits.

• --The subtraction from taxable income for adoptions has been doubled to $10,000 ($12,000 if the adopted child has special needs).  However, adoption expenses are not something we can handle at our sites. You will need to go to a paid preparer for that.