2023: New Year, New Limits

As we are about to turn the page (click the arrow?) on the calendar to move into 2023, there are many changes that happen around taxes. These include tax bracket changes, changes in the limits of what you can contribute to various retirement accounts, and a variety of other changes. The following is by no means an exhaustive list, but I’ve tried to include the changes that I think are most likely to be useful for planning purposes to the readers of this blog. As always, I’m not a CPA, so check with a tax professional if you have any questions.

2023 Federal Income Tax Brackets

Note that these tax rates themselves will expire after 2025 if no new legislation is passed and go back to the rate in place before the Tax Cuts and Jobs Act, so will return to 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%

2023 Federal Capital Gains Tax Brackets

2023 Federal Standard Deduction

Note that these will also return to their previous amounts after 2025 if no new legislation is passed.

Roth IRA Income and Contribution Limits

Traditional IRA Income and Contribution Limits

Defined Contribution Limits (401k, 403b, 457)

Many 457 plans have special last-3-years catch up provisions that are double the normal limit, so $45,000 in 2023.

Health Savings Accounts (HSA)

Health Flexible Spending Account (Health FSA)

Dependent Care Flexible Spending Account

Transportation Benefit Exclusion

Medicare Income-Related Monthly Adjustment Amount (IRMAA)

Education Tax Credits Income Phase Outs

Colorado State Income Tax Rate

As a result of Proposition 121 passing, Colorado’s income tax rate has dropped from 4.55% to 4.40% (effective for tax year 2022 as well).

Age for Required Minimum Distribution (RMD)

As a result of the Omnibus Spending Bill that passed last week, individuals born between 1951 and 1958 will have to start RMDs at age 73, while the RMD age for those born in 1959 or later will be 75 (both increased from the current age 72). I will write about some more changes that came in that bill later this week.

ACA Health Insurance Premium Subsidy

As part of the Inflation Reduction Act, the enhanced premium subsidy for health insurance through the ACA Marketplace was extended through 2025. Prior to the American Rescue Plan and now this extension, subsidies were limited to those with incomes up to 400% of the Federal Poverty Level. Currently, that income limit is waived and your premiums are limited to 8.5% of your Modified Adjusted Gross Income (MAGI).

Are There Changes You Can (Should) Make?

So now is a great time to evaluate all of the above areas that might apply to you and perhaps make some changes. It’s always a good idea to see if you can increase your contributions to retirement plans, your HSA, or your FSA, and as you start gathering all the info you need to complete your 2022 taxes, start thinking about ways you might be able to optimize your 2023 taxes.

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