LUTZ BUSINESS INSIGHTS
important tax changes and cost of living adjustments for 2023
justin vossen, investment advisor, principal
PUBLISHED: OCTOBER 25, 2022
The Internal Revenue Service and other government agencies have made several recent announcements regarding changes to many tax provisions, schedules, and other adjustments in recent weeks. Below we will provide a summary of the major changes that will affect everyone in some way. As always, it is best to consult your tax professional as to how they directly relate to you!
Marginal Income Tax Brackets
While the marginal income tax rates will remain the same for 2023, the income thresholds for those brackets have jumped roughly across all brackets for 2023. The increase in income brackets is roughly 7% across all brackets except the very lowest end from 2022’s income levels.
|Marginal rate||Individual income||Married couples filing jointly|
|10%||$11,000 or less||$22,000 or less|
|12%||$11,000 to $44,725||$22,001 to $89,450|
|22%||$44,726 to $95,375||$89,451 to $190,750|
|24%||$95,376 to $182,100||$190,751 to $364,200|
|32%||$182,101 to $231,250||$364,201 to $462,500|
|35%||$231,251 to $578,125||$462,501 to $693,750|
|37%||$578,126 or more||$693,751 or more|
The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700 from $25,900 in 2022. For single taxpayers and married taxpayers filing separately, the standard deduction rises to $13,850 this coming year versus $12,950 in 2022. *Remember, any individual over age 65 will also get the elder additional $1,850 deduction, so a married couple both over age 65 will receive a standard deduction of $31,400.
Earned Income Tax Credit
For 2023, the maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers who have three or more qualifying children, up from $6,935 a year prior. This credit has a table providing the amount for other family numbers, income thresholds, and phase-outs beyond the scope of this writing.
Annual and Lifetime Estate and Gift Tax Exemptions
The annual exclusion for gifts increases to $17,000 for 2023, up from $16,000 during 2022.
Estates of individuals who pass away during 2023 have an estate exclusion amount of $12,920,000, which is up from a total of $12,060,000 for those individuals who passed in 2022.
Earnings Subject To FICA Tax
The maximum amount of earnings subject to the Federal Insurance Contributions Act (which funds Social Security) – or FICA tax – will increase to $160,200 in 2023 from $147,000.
Alternative Minimum Tax
The AMT exemption amount for 2023 is $126,500 for married couples filing jointly and begins to phase out at $1,156,300. Alternatively, for individuals, the amounts begin at $81,300 and start to phase out at $578,150.
Social Security Cost of Living Increase
Social Security and Supplemental Security Income benefits will increase by 8.7% across the board for all beneficiaries beginning in 2023. This amounts to roughly an additional $140 benefit per month on average starting in January.
401(k), SIMPLE IRA, and IRA/Roth IRA Contribution Limits
The 2023 401(k) employee contribution limit will be $22,500, which is up from $20,500 in 2022. The change also applies to 403(b) plans, 457 plans, and the government’s TSP plan. Those over age 50 will be able to contribute an extra $7,500 to the same plans, which is up from $6,500 this year.
Simple IRA contribution limits will increase to $15,500 for 2023, a $1,500 increase from 2022. There is a catch-up component for individuals over age 50 for a total contribution limit of $19,000.
IRA contributions will also be increasing to $6,500 for 2023 versus the $6,000 level for 2022. However, the catch-up contribution for those over 50 years of age to an IRA will remain at $1,000.
After a sharp increase in 2022, Part B Medicare monthly premiums will decline to $164.90 in 2023 from $170.10 in 2022. The Part B deductible will also decline to $226 in 2023 from $233 in 2022, according to The Centers for Medicare and Medicaid.
The Center for Medicare and Medicaid also announced that the income brackets and adjustments for Medicare Part B premiums for 2023 will be adjusted higher as well.
If you have immediate questions or concerns, please contact Lutz Financial today at 402.827.2300.
Important Disclosure Information
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz Financial. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Lutz Financial is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Lutz Financial’s current written disclosure statement discussing our advisory services and fees is available upon request.
ABOUT THE AUTHOR
JUSTIN VOSSEN, CFP® + INVESTMENT ADVISOR, PRINCIPAL
Justin Vossen is an Investment Advisor and Principal at Lutz Financial. With 21+ years of relevant experience, he specializes in providing wealth management and financial planning services for high net-worth families, business owners in transition, endowments and foundations. He lives in Omaha, NE, with his wife Nicole, and children Max and Kate.
AREAS OF FOCUS
- Investment Advisory Services
- Comprehensive Financial Planning
- Business Owner Planning & Succession
- High Net Worth Families
AFFILIATIONS AND CREDENTIALS
- CERTIFIED FINANCIAL PLANNER™
- Financial Planning Association, Member
- BSBA in Economics and Finance, Creighton University, Omaha, NE
- St. Augustine Indian Mission, Board Member
- Nebraska Elementary and Secondary School Finance Authority, Board Member
- St. Patrick's Church, Trustee
- Mount Michael Booster Club Board
- Lutz Gives Back, Committee Chair
- March of Dimes Nebraska, Past Board Member
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