News & Updates

The adoption tax credit lets families who were in the adoption process during 2022 claim up to $14,890 in eligible adoption expenses for each eligible child. Taxpayers can apply the credit to international, domestic, private and public foster care adoptions.

Things to know about claiming the credit

• To claim the adoption credit, taxpayers complete Form 8839, Qualified Adoption Expenses and attach it to their tax return. They use this form to figure how much credit they can claim.
• There are income limits that affect the amount of the credit.
• The adoption tax credit is non-refundable. It will reduce a tax bill but won't result in a refund, even when the amount of credit is greater than the tax bill. However, a taxpayer can carry their leftover credit forward and apply it to future tax returns for up to five years.

Who is considered an eligible child

An eligible child is an individual who is under the age of 18 or is physically or mentally incapable of caring for themself.

Qualified expenses

Qualified adoption expenses include such things as:

• Adoption fees
• Court costs and legal fees
• Adoption related travel expenses like meals and lodging
• Other expenses directly related to the legal adoption of an eligible child

Expenses may be deductible even if the taxpayer pays them before an eligible child is identified. For example, some future adoptive parents pay for a home study at the beginning of the adoption process. These parents can claim the fees as qualified adoption expenses.

Qualified adoption expenses do not include expenses that a taxpayer pays to adopt their spouse's child. They may, however, include adoption expenses paid by a registered domestic partner if that partner lives in a state that allows a same-sex second parent or co-parent to adopt their partner's child.

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In recent years, the gig economy has changed how people do business and provide services. Taxpayers must report their gig economy earnings on a tax return – whether they earned that money through a part-time, temporary or side gig. The IRS Gig Economy Tax Center provides information and resources to help this group of entrepreneurs and workers understand and meet their federal tax obligations.

Here are key things for individuals involved in the gig economy to remember as they get ready to file in 2023.

Gig economy income is taxable

• Taxpayers must report all income on their tax return unless excluded by law, whether they receive an information return such as a 1099 or not.
• Individuals involved in the gig economy may also be required to make quarterly estimated tax payments to pay income tax and self-employment tax, which includes Social Security and Medicare taxes. The last estimated tax payment for 2022 is due January 17, 2023.

Workers report income according to their worker classification

Gig economy workers who perform services, such as driving a car for booked rides, running errands and other on demand work, must be correctly classified. Classification helps the taxpayer determine how to properly report their income.

• If they are employees, they report their wages from the Form W-2, Wage and Tax Statement.
• If they are an independent contractor, they report their income on a Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship).

The business or the platform determines whether the individual providing the services is an employee or independent contractor. The business owners can use the worker classification page on IRS.gov for guidance on properly classifying employees and independent contractors.

Expenses related to gig economy income may be deductible

Individuals involved in the gig economy may be able to deduct expenses related to their gig income, depending on tax limits and rules.

• Taxpayers may be able to lower the amount of tax they owe by deducting certain expenses.
• It is important for taxpayers to keep records of their business expenses.

Pay the right amount of taxes throughout the year

An employer typically withholds income taxes from their employees' pay to help cover taxes their employees owe.

Individuals involved in the gig economy have two ways to cover their taxes due:

• If they have another job where they are considered an employee, they can submit a new Form W-4, Employee's Withholding Certificate to their employer to have more taxes withheld from their paycheck to cover the tax owed from their gig economy activity.
• They can make quarterly estimated tax payments throughout the year.

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One of the first decisions taxpayers must make when completing a tax return is whether to take the standard deduction or itemize their deductions. There are several factors that can influence a taxpayer's choice, including changes to their tax situation, any changes to the standard deduction amount and recent tax law changes.

Generally, most taxpayers use the option that gives them the lowest overall tax.

As taxpayers begin to think about filing their tax return, here are some things they should know about standard and itemized deductions.

Standard deduction

The standard deduction amount increases slightly every year. The standard deduction amount depends on the taxpayer's filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don't itemize deductions are entitled to a higher standard deduction.

Most filers who use Form 1040 can find their standard deduction on the first page of the form. The standard deduction for most filers of Form 1040-SR, U.S. Tax Return for Seniors, is on the last page of that form.

According to the Instructions for Form 1040 and 1040-SR, not all taxpayers can take a standard deduction, including:

• A married individual filing as married filing separately whose spouse itemizes deductions - if one spouse itemizes on a separate return, both must itemize.
• An individual who files a tax return for a period of less than 12 months. This is uncommon and could be due to a change in their annual accounting period.
• An individual who was a nonresident alien or a dual-status alien during the year. Nonresident aliens who are married to a U.S. citizen or resident alien, however, can take the standard deduction in certain situations.

Itemized deductions

Taxpayers who choose to itemize deductions may do so by filing Schedule A (Form 1040), Itemized Deductions. Itemized deductions that taxpayers may claim can include:

• State and local income or sales taxes.
• Real estate and personal property taxes.
• Home mortgage interest.
• Personal casualty and theft losses from a federally declared disaster.
• Gifts to a qualified charity.
• Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income.

Some itemized deductions, such as the deduction for taxes, may be limited. Taxpayers should review the instructions for Schedule A (Form 1040) for more information on limitations.

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People with disabilities and their families can use Achieving a Better Life Experience or ABLE accounts to help pay for qualified disability-related expenses. ABLE accounts are tax-advantaged savings accounts that don't affect eligibility for government assistance programs. Here are some key things people should know about these accounts.

Annual contribution limit

• The 2022 limit is $16,000.
• Certain employed ABLE account beneficiaries may make an additional contribution up to the lesser of these amounts:
• The designated beneficiary's compensation for the tax year or
• For 2022, $12,880 for residents in the continental U.S., $16,090 in Alaska and $14,820 in Hawaii.

Saver's credit

• ABLE account designated beneficiaries may be eligible to claim the saver's credit for a percentage of their contributions.
• The beneficiary claims the credit on Form 8880, Credit for Qualified Retirement Savings ContributionsPDF. The saver's credit is a non-refundable credit available to individuals who meet these three requirements:
• Are at least 18 years old at the close of the taxable year
• Are not a dependent or a full-time student
• Meet the income requirements

Rollovers and transfers from section 529 plans

• Families may roll over funds from a 529 plan to another family member's ABLE account.
• The ABLE account must be for the same beneficiary as the 529 account or for a member of the same family as the 529 account holder. Rollovers from a section 529 plan count toward the annual contribution limit. For example, the $16,000 annual contribution limit for 2022 would be met by parents contributing $10,000 to their child's ABLE account and rolling over $6,000 from a 529 plan to the same ABLE account.

Qualified disability expenses

• States can offer ABLE accounts to help people who become disabled before age 26 or their families pay for disability-related expenses. These expenses include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services.
• Though contributions aren't deductible for federal tax purposes, distributions, including earnings, are tax-free to the beneficiary, if they are used to pay qualified disability expenses.

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When people get married their tax situation often changes. A taxpayer's marital status as of December 31 determines their tax filing options for the entire year, but that's not all newlyweds need to know.

Here's a tax checklist for newly married couples:

Name and address changes

• Name – When a name changes through marriage, it's important to report that change to the Social Security Administration. The name on a person's tax return must match what is on file at the SSA. If it doesn't, it could delay any tax refund. To update information, taxpayers should file Form SS-5, Application for a Social Security Card. It is available on SSA.gov, by phone at 800-772-1213 or at a local SSA office.

• Address – If marriage means a change of address, the IRS and U.S. Postal Service need to know. To do that, people should complete and send the IRS Form 8822, Change of Address. Taxpayers should also notify the postal service to forward their mail by going online at USPS.com or visiting their local post office.

Withholding

• After getting married, couples should consider changing their withholding. Newly married couples must give their employers a new Form W-4, Employee's Withholding Allowance within 10 days. If both spouses work, they may move into a higher tax bracket or be affected by the additional Medicare tax. They can use the Tax Withholding Estimator on IRS.gov to help complete a new Form W-4. Taxpayers should review Publication 505, Tax Withholding and Estimated Tax, for more information.

Filing status

• Married people can choose to file their federal income taxes jointly or separately each year. While filing jointly is usually more beneficial, it's best to figure the tax both ways to find out which makes the most sense. Taxpayers should remember, if a couple is married as of December 31, the law says they're married for the whole year for tax purposes.

Scams

• All taxpayers should be aware of and avoid tax scams. The IRS will never initiate contact using email, phone calls, social media or text messages. First contact generally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.

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