February 2023 Tax Updates

State Rebate Payments Excluded from Income

The IRS recently issued a notice asking taxpayers to hold off on return submissions while an assessment was done to determine the taxability of 2022 relief payments issued by many states. Upon review, the IRS determined that these payments should be excluded from income “in the best interest of sound tax administration”. In order for taxpayers in Georgia, Massachusetts, South Carolina and Virginia to exclude these payments from income, special conditions apply.

PA Demand for Payment Letters & Tax Season Scams

The state of Pennsylvania is advising taxpayers to be on the lookout for fake letters  from fraudsters purporting to represent the Department of Revenue demanding payment. These letters indicate that wages or property will be garnished if the taxpayer does not call the number provided and make payment. The correspondence comes from a phony entity called the “Tax Assessment Procedures Domestic Judgement Registry”. In addition to postal scams, thieves are also hard at work setting digital traps. Skimming emails is a great time saver, but insufficient attention to detail can cause the most sophisticated individuals to fall victim to scams. Cyber traps are growing increasingly difficult to spot and generally ramp up during tax season when substantial dollar amounts are changing hands. Be cautious of any electronic communication from unknown sources that is alarming or seems designed to force you to act now.  Shred physical documents after the appropriate retention period and do not transmit any personal information  without secure encryption or password protection. Don’t be a victim! If you’re unsure about any tax correspondence received, please reach out to your Siegfried Advisory point of contact.

U.S Retirement Planning gets a boost

The Secure 2.0 Act of 2022 made nearly 100 changes to help Americans save. These changes include default automatic enrollment in retirement plans for eligible employees and expansion of the Saver’s Match program (a nonrefundable tax credit for certain retirement plan contributors). The required minimum distribution age increased to 73 (up from 72) on January 1, 2023 and will increase to age 75 starting on January 1, 2033. For plan years beginning after December 31, 2023, section 110 of Secure 2.0 allows for employees’ payment of qualified student loan payments to count as elective deferrals for purposes of employer matching contributions.

Lifetime Estate & Gift Tax Exemption

Gift tax can be thought of as tax on transfers during life, while estate tax relates to transfers after death. In general, federal gift tax is an assessment paid by  the gift-giver on property given to others during the year in excess of an annual dollar amount set by the IRS. For 2023, this annual gift tax exclusion amount is $17,000 per individual and $34,000 for gifts of joint property of married couples. Upon death, the decedent’s estate is generally not subject to federal estate tax if the estate is valued at less than the exemption amount set by the IRS for the year of death. For 2023, the estate and gift tax exemption continues its ascent, landing at 12.92 million dollars per individual. Married couples can shelter up to 25.84 million without paying federal or estate gift tax. The gift and estate tax exemption are combined. This means that use of the gift tax exemption decreases the dollar amount of what can be excluded from taxation upon death. Since the gift tax exemption directly impacts what is available to use for the estate tax exemption, these combined features are commonly referred to as a “unified credit”.  Despite federal rules, state taxation may vary.