The New Year is upon us and many of us take this time to lay out our financial plan for the upcoming year. There are some important changes to tax rules and limits that you should be aware of that may affect your planning. We’ve outlined them here to help you create your best plan:
Here is a general overview for 2023:
Retirement Plan limits
- The contribution limit has been increased to $22,500. (Up from $20,500 in 2022.) This contribution limit also applies to most 457 plans and 403(b)s.
- For those over age 50, the catch up contribution limit is increasing to $7500 (from $6500 in 2022).
While the over 50 catch-up limit is not being changed for IRAs, the annual contribution limit for 2023 is being increased to $6500 (up from $6000 in 2022).
Higher Health Saving Account (HSA) Limits
- For 2023, the maximum annual contribution amount is $3,850 (up from $3,650 in 2022).
- For families the amount is $7,750 per year (up from $7,300 in 2022).
- The catch-up contribution amount for those age 55 or older is $1,000 per year.
Tax brackets have increased to our benefit. Here are the changes for 2023
America’s income tax rates are staying the same. But the tax bracket and the income buckets that are used to calculate the tax are increasing to our benefit.
Remember, your highest tax bracket doesn’t reflect how much you pay in federal income taxes. If you’re a single filer in the 22 percent tax bracket for 2023, you won’t pay 22 percent on all your taxable income. You will pay 10 percent on taxable income up to $11,000, 12 percent on the amount from $11,000 to $44,725, and 22 percent above that (up to $95,375).
Tax brackets for income earned in 2023
- 37% for incomes over $578,125 ($693,750 for married couples filing jointly) – Up from $539,900 and $647,850 respectively
- 35% for incomes over $231,250 ($462,500 for married couples filing jointly) – Up from $215,950 and $431,900
- 32% for incomes over $182,100 ($364,200 for married couples filing jointly) – Up from $170,050 and $340,100
- 24% for incomes over $95,375 ($190,750 for married couples filing jointly) – Up from $89,075 and $178,150
- 22% for incomes over $44,725 ($89,450 for married couples filing jointly) – Up from $41,775 and $83,550
- 12% for incomes over $11,000 ($22,000 for married couples filing jointly) – Up from $10,275 and $20,550
- 10% for incomes of $11,000 or less ($22,000 for married couples filing jointly) – Up from $10,275 and $20,550
Married filing separately pay at same rate as unmarried. Source: Internal Revenue Service
Increased Standard Deduction for 2023
The taxpayers Standard Deduction is the amount of income exempt from income taxes.
- The standard deduction will rise to $13,850 for single filers. Up from $12,950 in 2022.
- The standard deduction for couples filing jointly will rise to $27,700, up from $25,900 in the 2022 tax year.
- The Head of Household deduction will rise to $20,800.
- Single filers age 65 and older (who are not a surviving spouse) can increase the standard deduction by $1,850.
- Each joint filer 65 and over can increase the standard deduction by $1,500 each, for a total of $3,000 if both joint filers are 65+.
If you choose to itemize your deductions, these changes will not affect you. Most taxpayers to not itemize.
Cost of Living Increase (COLA) for Social Security and Supplemental Security Income (SSI) benefits
Approximately 70 million Americans will see an increase of 8.7 percent in 2023.
The 8.7 percent cost-of-living adjustment will begin with benefits payable to more than 65 million Social Security beneficiaries in January 2023. Increased payments to more than 7 million SSI beneficiaries will begin on December 30, 2022.
There are 2 changes to be aware of for 2023.
- Medicare beneficiaries will pay lower Part B premiums. The premium for Part B will decrease by 3% to $164.90.
- The annual deductible will also decrease from $233 to $226 for 2023.
Even with inflation and the current high costs of living, these changes are put in place to help. So make sure to do your planning and know of these extra limits available to you!