The Foreign Service Journal, January-February 2023

AFSA NEWS 60 JANUARY-FEBRUARY 2023 | THE FOREIGN SERVICE JOURNAL 2023 Form W-4 Withholding Certificate Taxpayers usually do not think to revise their FormW-4 with- holdings until April or until they have paid their final 2022 taxes. Delaying a FormW-4 update may result in taxpayers withholding taxes on their wages based on an old calculation for several months of 2023. Don’t wait. AFSA recommends readers revise their Form W-4 via their human resources office or through their employer’s online portal (e.g., Employee Express for State Department employees) as soon as possible. Promptly doing so will help you avoid over-withholding or playing catch-up due to under-withholding for sev- eral months. For help in calculating withholding, the IRS built a withholding estimator ( www.irs.gov/W4App) . Please note that this estimator may not work well for taxpayers with rental properties, those claiming the FEIE, or for those who potentially have other complicated tax issues in their returns. Taxpay- ers with these complications should complete the worksheets provided with FormW-4 and/or consult a tax professional. Please take particular note that the withholding neces- sary for a married couple filing jointly with two incomes should account for both spouses’ incomes. If both incomes are not accounted for on each spouse’s withholding, then the married filing jointly return may be under-withheld for taxes due upon filing. The FormW-4 includes optional methods to account for two or more incomes on the withholding under Step 2. FormW-4 no longer allows exemptions for depen- dents but does account for the child and other dependent tax credits available under current law. Standard Deduction The standard deduction has increased this year to: • $25,900 married filing jointly (MFJ), • $19,400 for heads of household (HOH), specifically defined by Internal Revenue Code (IRC) Section 2(b), and • $12,950 for single taxpayers and married individuals filing separately (MFS). The personal exemption remains $0 for 2022. Capital Gains for Sale of Capital Assets Such As Stocks and Similar Securities Determining the correct tax rate for capital gains requires taxpayers to first categorize their capital gains into short-term (gain from investments held for less than one year) and long- term (gain from investments held for one year or more). Next, taxpayers net their short-term capital gains (STCG) against their short-term capital losses (STCL), and their long-term capital gains (LTCG) against their long-term capital losses (LTCL). The results are taxed per the illustration below: Any net LTCG that results from this process is taxed at the capital gains rates in the table below. There are exceptions to these rates for certain types of capital gains, such as Section 1202 qualified small business stock, net capital gains from collectibles, and Section 1250 unrecaptured gains (explained in “Invest- ments in Real Estate,” on page 61). Finally, and closely related, an additional 3.8 percent net investment income tax may apply to some forms of invest- ment income, including some capital gains for taxpayers with modified adjusted gross income (AGI) above: • $250,000 for those MFJ or qualifying surviv- ing spouse with a depen- dent child, • $200,000 HOH or single, and • $125,000 for those MFS.