Tax Updates for 2023
Please note that this is not meant to be an exhaustive list of all of the updates for tax year 2023. Tax laws can change throughout the year. If you have question on any given tax subject for your situation, please give us a call or email to ensure that we can give you the most accurate answer possible.
(Information as of 01/12/2024)
Child Tax Credit Updates
None so far, however congress is currently debating on increasing the child tax credit and making it fully refundable. It’s possible this happens January 2023, before tax season. Stay tuned!
Child and Dependent Care Tax Credit Updates
(Daycare Credit)
For 2022, the Child & Dependent Care Tax credit is also set to revert back to 2020’s amounts. If both spouses or employed, $3,000 of expenses for one dependent or $6,000 of two or more can be taken.
Of those expenses, 20-35% is taken as a non-refundable credit depending on Adjusted Gross Income.
Retirement Updates
Required minimum distributions (RMDs) You must take your first required minimum distribution for the April following the year in which you turn age 73.
RMD age increases as follows:
Age 74 in 2030
Age 75 in 2033
Fortunately the penalty for failure to withdraw went down from 50% down to 25% for failure to take out. If corrected in timely manner, 10% (potentially none).
The age limit for IRA contributions has been lifted. No longer is the age limit set to 70 1/2, you now can contribute as you please up to the contribution limit so long as you have earned income. This means that if you don’t need your RMD’s, you can stash some of that back away in your IRA so long as it is earned income to continue growing while giving you a deduction if it is going to a pre-tax account.
Many limits on retirement plans and IRAs have been changed for 2023.
The maximum contribution limits for 401(k) and 403(b) plans increase to $22,500 in 2023 to $23,000 in 2024, with catch-up contributions staying put at $7,500.
457(b) contribution limits will increase from $22,500 to $23,000 in 2024. 457(b)s have unique catch-up contribution rules, so consult with your plan administrator if you are interested in putting more in your 457(b).
The 2023 contribution limit for traditional IRAs and Roth IRAs increases to $6,500 plus $1k for catch-up.
The SIMPLE IRA and SIMPLE 401(k) contribution limits will increase from $15,500 in 2023 to $16,000 in 2024.
Mileage rates
The deduction for business mileage has been updated to a flat 65.5 cents/mile.
2023 Tax Brackets
2023 Standard Deduction
Education
Although not new for 2023, there is a new option to potentially roll any unused 529 funds to the recipient’s Roth IRA. Consult us for details.
The phase-out thresholds of income for the Lifetime Learning Credit and American Opportunity credit were increased, otherwise no changes.
Health Savings Accounts/Flex Spending Accounts
For single people, the HSA contribution limit will increase from $3,850 in 2023 to $4,100 in 2024. Family coverage will increase from $7,750 to $8,300.
Healthcare FSA contribution limits will stay put at $3,050. Note that there are other types of FSAs (such as dependent care FSAs) with different limits.
Premium Tax Credit
The premium tax credit helps eligible Americans cover the premiums for health insurance purchased through the Marketplace (a.k.a. Obamacare). The updates are as follows:
Increases in the credit amount for eligible taxpayers by reducing the percentage of annual income that households are required to contribute toward the premium.
It also allows the credit to be claimed by people with an income above 400% of the federal poverty line.
Miscellaneous Changes for 2023
Mortgage insurance premiums deduction - No Longer Deductible
Nonbusiness Energy Property Credit for certain energy-saving improvements to your home (e.g., new energy-efficient windows and skylights, exterior doors, roofs, insulation, heating and air conditioning systems, water heaters, etc.) has increased for 2023! Also, gone is the lifetime cap, it’s assessed each year now with a cap of $1,200.
The solar tax credit has been renewed at 30% and will be that way for the next several years.
Electric Vehicle Credits underwent sweeping changes during 2022, and will adjust annually through 2025. KEY CHANGES to the credit are that used EVs may qualify and the eligible vehicles change on a yearly basis. Ask Blake for his ‘EV Tax Credits Explained’ slides, it will tell you all that you need to know!
1099-K - There’s much confusion on the topic as the rules have changed 3 times in the past 18 or so months, but it’s now set to $20,000 / 200 transactions over the year before you’d see one from a payment app or online marketplace.