Every year the IRS changes several items based on the rate of inflation. Their goal is to help people maintain their purchasing power as the cost of living rises due to inflation. In years past, this wasn’t a big deal as inflation was very muted, causing the IRS adjustments to be minor. As we know by now and are probably sick of hearing… INFLATION WAS OFF THE CHARTS IN 2022. This led the IRS to announce significant increases for 2023. We wanted to save you the time of combing through all the press releases and give you a rundown of the most common areas.
1. Cost Of Living Adjustment (COLA) to social security benefits of 8.7%.
Over 70 million Americans who collect social security benefits or disability benefits will get a raise in 2023. This was the largest year-over-year increase since 1981. *You do not have to do anything to receive this increase; benefits paid to you will automatically reflect the increase.
2. Income Tax Brackets Increased roughly 7% across the board:
– 10% for incomes of $11,000 or less ($22,000 for married couples filing jointly)
– 12% for incomes over $11,000 ($22,000 for married couples filing jointly)
– 22% for incomes over $44,725 ($89,450 for married couples filing jointly)
– 24% for incomes over $95,375 ($190,750 for married couples filing jointly)
– 32% for incomes over $182,100 ($364,200 for married couples filing jointly)
– 35% for incomes over $231,250 ($462,500 for married couples filing jointly)
– 37% for incomes higher than $578,125 ($693,750 for married couples filing jointly)
3- Capital Gains Tax Rates: Long-term capital gains will be taxed at the below rates
If your tax-filing status is SINGLE:
– 0% if your income is between $0 and $44,625
– 15% if your income is between $44,626 to $492,300
– 20% if your income is $492,301 or more
If your tax-filing status is MARRIED, FILING JOINTLY:
– 0% if your income is between $0 to $89,250
– 15% if your income is between $89,251 to $553,850
– 20% if your income is between $553,851 and more
* All short-term capital gains are still taxed at your income tax brackets
4- Retirement Account Contribution Limits: They were all increased
– 401K, 403B, most 457 plans: Limit is $22,500 ($7500 catch-up contribution if over age 50)
– Traditional and Roth IRA: Limit is $6500 ($1000 catch-up contribution if over age 50)
– Simple IRA: Limit is $15,500 ($3500 catch-up contribution if over age 50)
– SEP IRA: $66,000 per year
– The income phase-out level for ROTH IRAs is now as high as $153,000 for single filers; and as high as $228,000 for married couples.
– There is still no limit on how much money you can convert to a ROTH
These are just the IRS changes for the most common areas that the IRS adjusted. In total, there have been adjustments to over 70 different items. Remember, these levels will affect tax returns filed in 2024, contributions made for 2023, and capital gains realized in 2023. If you want to spend some time looking through all the announcements, here are the links:
401(k) limit increases to $22,500 for 2023, IRA limit rises to $6,500