CHANGES AT THE IRS AND SSA ANNOUNCED
Time to Start Planning for 2023
Amid higher gas and grocery prices, changes announced this month at the IRS and the Social Security Administration might offer some tax savings or boost your income. Here are five changes you can anticipate.
Social Security Cost of Living Adjustment (COLA) Change
The Social Security Administration announced Social Security beneficiaries will get an 8.7% increase to their benefits in 2023, the highest increase in 40 years.
If your Social Security retiree benefit is currently $30,000/per year, you can expect that to increase by $2,580 in 2023.
Tax Bracket Changes
The IRS is booting tax brackets for the tax year 2023, by about 7%. The higher thresholds provide tax relief since more of your income dollars will be in a lower tax bracket.
For example, a married couple earning $200,000 in both 2022 and 2023 would save $900 in taxes next year because more of their income would be taxed at a lower rate while a married couple earning $500,000 might save as much at $3,500 in taxes.
Standard Deduction Changes
For the tax year 2023, the IRS also announced increases to the standard deduction. (Since the SALT tax limit was changed to $10,000 many more people are forced to use the standard deduction)
For married couples filing jointly, the standard deduction will rise to $27,700, up from $25,900 in the current tax year. That's an increase of $1,800, or a 7% bump.
For single taxpayers and married individuals filing separately, the standard deduction will rise to $13,850 in 2023 from $12,950 currently. That's an increase of about 6.9%.
401K Contribution Changes
The IRS announced a record increase in contribution limits to 401(k) and other tax-deferred retirement plans for 2023.
Starting next year, you will be allowed to contribute up to $22,500 into your 401(k), 403(b), most 457 plans or the Thrift Savings Plan for federal employees. That’s $2,000 – or roughly 9.8% – more than the current $20,500 federal contribution limit.
And in 2023, the catch-up contribution - the amount plan participants who are 50 and older may save on top of the federal contribution limit - will rise to $7,500, up 15.4% from $6,500 today. That means if you’re 50 or older you can contribute up to $30,000 in 2023.
IRA Contribution Changes
Finally, the limit on annual contributions to an IRA account increased to $6,500, up from $6,000 (a $500 increase). However, the IRA catch up contribution limit for individuals aged 50 and over is not subject to an annual cost of living adjustment and remains $1,000.
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