Due to the impending recession, the federal government has made several changes to the tax laws. That means your taxes are going to change in 2023. And here’s the kicker: they aren’t going to increase.
In fact, the government has begun plans to decrease taxes so that you can keep most of your paycheck with you. But that’s not all. There are several other ways your taxes will change in 2023.
Let’s look through the 11 most crucial ways your tax bill is going to give your paystub generator a much-needed break.
1. Your Income Might Fall into a Lower Tax Bracket
While the IRS has maintained the same tax brackets as last year — at 10, 12, 22, 24, 32, 35, and 37 percent — it has increased the income level of each bracket by 7.1 percent. That means your income might hit a lower tax bracket, helping you save a few more dollars the next year.
Here are the new tax brackets in more detail:
- 10% – Up to $11,000 for single tax filers, $22,000 for couples filing jointly, and $15,700 for heads of households.
- 12% – From $11,001 to $44,725 for single tax filers, $22,001 to $89,450 for couples filing jointly, and $15,701 to $59,850 for heads of households.
- 22% – From $44,726 to $95,375 for single tax filers, $89,451 to $190,750 for couples filing jointly, and $59,851 to $95,350.
- 24% – From $95,376 to $182,100 for single tax filers, $190,751 to $364,200 for couples filing jointly, and $95,351 to $182,100 for heads of households.
- 32% – From $182,100 to $231,250 for single tax filers, $364,201 to $462,500 for couples filing jointly, and $182,101 to $231,250 for heads of households.
- 32% – From $231,251 to $578,125 for single tax filers, $462,501 to $693,750 for couples filing jointly, and $231,251 to $578,100 for heads of households.
- 37% – From $578,126 and above for single tax filers, $693,750 and above for couples filing jointly, and $578,101 and above for heads of households.
2. Your Standard Deductions Will Decrease
If you’re a joint filer and don’t itemize the deduction on your 2023 return, you’ll be given a $1,800 reduction on your taxable income. This puts at least $400 in your pocket if you fall within the 24 percent tax bracket.
3. You Can Pay More Towards HSA
The IRS has increased the pretax contribution limit to your health savings account (HSA) from $3,650 to $3,850, a $200 increase. This makes it easier for you to pay for health-related costs using income that isn’t taxed by the federal government.
Moreover, if you only have self-only coverage, your HSA limit will be $3,850 from $3,650. It will go from $7,300 to $7,750 for family coverage.
4. You’ll Have to Pay Less AMT
Because the IRS has raised the income threshold for the alternative minimum tax (AMT) from $118,100 to $126,500 for married couples, those with higher incomes can avoid this tax. The threshold for individuals is $81,300 from $75,900.
5. Your Income Tax Credits Will Increase
If you have three or more qualifying children, your maximum earned income tax credit (EITC) will go from $6,935 in 2022 to $7,430 in 2023.
Plus, you’ll be able to receive a refund even if you don’t owe the IRS any tax. Why? Because the EITC is a refundable tax credit.
6. Your 401(k) Contribution Limit Will Increase
According to recent announcements made by the IRS, you’ll be able to contribute more towards your 401(k) in 2023 because of the impending recession. People who are 50 and above will have a higher catch-up amount limit as well.
Currently, 401(k) contributions are limited to $20,500 for those under 50 and $27,000 for those above. However, in 2023, they will rise to $22,500 for people under 50 and $30,000 for those above.
7. Your IRA Contribution Limits Will Increase
If you don’t have a 401(k) because you’re self-employed or work for a small business, you can save money for retirement using the IRA. In 2023, the contribution limits to the IRA are increasing from $6,000 to $6,500 for people below 50.
The limit is going to increase from $7,000 to $7,500 for those who are 50 and older.
8. You Will Be Able to Give Away More Money
If you’re a philanthropist, like to give away money, and want to hack your life, you’re in luck. The IRS has increased the annual exclusion for gifts limit from $16,000 to $17,000.
Giving away this money can help you avoid estate taxes, which may be necessary if you have a multi-million dollar estate.
9. You’ll Pay Less Tax on Your Estate
The IRS has increased the individual estate tax exclusion limit for anybody dying in 2023 from $12.06 million to $12.92 million. This means an additional $860,000 of your estate’s total assets will be safe from the 40% federal estate tax levied on estate values that go above the IRS threshold.
10. You’ll Retain More Foreign Income
For Americans who earn money by working outside the US, this is good news. The IRS has increased the foreign-earned income exclusion limit from $112,000 to $120,000 in 2023, helping high-income earners keep their foreign earnings.
11. You’ll Have a Higher FSA Limit
If you don’t have access to a health savings account (HSA), you could use a flexible spending account (FSA) to get a tax break on the money you set aside for medical costs. In 2023, the FSA contribution limit will rise from $2,850 to $3,050.
However, remember that while FSA funds do expire (unlike HSA funds), they’re still a better option than nothing. Still, be careful about the money to contribute to your FSA, and make sure you can spend it on eligible expenses within the year.
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