Happy new year everyone! Soon, tax season for 2022 will be here, but there are several changes for this new year (2023) that will play out when you file your taxes in 2024. Several contribution limits have gone up and standard deductions are increasing. These are things you might want to be aware of now in order to make adjustments to make the most for 2023.
Here are 5 key tax changes for 2023:
1. 401k annual contribution limits have gone up by $2,000.
For 2023, the IRS has increased the amount you can contribute to an employer-provided 401k. The amount individuals can now contribute rises to $22,500 per year, up from $20,500 in 2022. While you may not be ‘maxing out’ your 401k today to these limits, strive toward minimally contributing to the match that your employer may provide. Otherwise, you are leaving money on the table. For more information on how to prioritize your savings, revisit my article Bucket Retirement Account Contributions in the Right Order. For those of you who do max out your 401k annually, now is a good time to log into your account and make sure your contribution percentages are set to ensure you’re contributing to the limit.
2. Individual Retirement Account limits have increased by $500.
The amount an individual can contribute to an Individual Retirement Account or IRA will increase for 2023. The annual contribution limit moves to $6,500 in 2023 vs. $6,000 in 2022. The additional ‘catch up’ limit for those 55 years and older remains at $1,000, making the total $7,500 for those individuals.
In addition, the IRS made changes to the income limits to allow more people to be eligible for Roth IRA contributions. More information on that can be found at the IRS website.
3. Health Savings Account contribution limits have increased for individuals and families.
Health Savings Accounts or HSAs enable individuals to save money pre-tax into an account that can be used for qualified health expenses. This is NOT use it or lose money (that is a Flexible Spending Account). The 2023 HSA contribution limits are $3,850 for individuals and $7,750 for a family; up from $3,650 and $7,300 respectively.
I personally LOVE my HSA and the flexibility it provides me and my family for the future. For more information on HSAs, revisit my article The Power of a Health Savings Account.
4. Flexible Spending Account limits have increased by $200.
The voluntary employee health FSA contribution limit for 2023 will be $3,050 – a $200 increase over the 2022 limit. This limit applies only to employee contributions vs. what an employer might also contribute. Dependent Care Account limits remain the same for 2023, at $5,000 per year.
5. The standard deduction is increasing for 2023 for all taxpayers.
The amount that individuals can deduct using a standard deduction on their tax return for the 2023 tax year (filing in 2024) is rising to $27,700 for married couples filing jointly, up from $25,900 in 2022. Single filers may claim $13,850 in 2023, a jump from $12,950. Additionally, overall tax brackets have been adjusted for 2023 as well due to inflation. Details on tax changes for 2023 can be found at the IRS website.
Overall, lots of good changes, many in response to inflation pressures. As you plan through your financial moves in 2023, keep these things in mind and make adjustments where needed.
That’s all for now. May the new year bring you an abundance of health and wealth.