Every year the IRS adjust things like brackets, deductibles, retirement plan limits, and etceteras. 2023 is no exception and, with inflation at-or-near double digits, these adjustments are worth paying attention to. A few highlights:
401k Limits
The headliner for this crowd is we’ll be seeing increased limits for 401k contributions. Individuals will now be able to contribute up to $22,500 in 2023 – up quite a bit from 2022’s $20,500 limit. The 50+ crowd – eligible for the “catch up” contribution limit – sees there limit rise to $30,000 in 2023.
Other retirement account contribution limits were raised as well. Check out this article from the Hill for further details.
Deductions
Nearly all Americans utilize the standard deduction so it’s welcome to see some big jumps there (even if not quite at annual inflation rates). For example …
- Married couple filing joint: raised from $25,900 to $27,700 (up $1,800, or approximately 7%)
- Singles & couples filing separately: raised from $12,950 to $13,850 (up $700, or approximately 5%)
Families and seniors are seeing hikes in deductions as well. Forbes offers a good summation if you’re looking for more detail.
Earned Income Tax Credit
This phased credit is designed to help low income families with three or more children. Those able to take full advantage of the EITC will see the credit increase 7%, from $6,935 in 2022 to $7,430 in 2023.
Income Brackets
Brackets – the income boundaries that determine your tax rate – are going up by 7%. This is to help offset inflation as it wouldn’t be fair to tax 2023 earnings at prior year rates. For example, say you get a cost-of-living increase next year. The point of that raise is to cover increased costs. Now, what if that raise put you in a higher tax bracket? No, not a good thing.
Gains
Capital gains limits are also changing. In 2023, married couples will pay taxes on gains in excess of $89,250, up from $83,350 in 2022 (a 7% increase).
Remember – 2023 rules apply to 2024 filings!
All of the above is great but, alas, it will only apply to income and gains accrued in calendar year 2023 hence your 2024 filing. Tax time in 2023 will apply to earnings in 2022 – where the old brackets, limits, and deductions will apply.
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